CNBC – US manufacturing activity-as well as employment in the sector-rose to its highest level since June, joining a series of economic reports that indicates Friday’s jobs number may be better than some expect.
The growth in the ISM Manufacturing index also matches a global trend of improving factory activity in December from the month before. The ISM index rose to 53.9 from 52.7 in November and 50.8 in October. A reading above 50 shows economic expansion.
“I thought the details were solid. Orders were up. Inventories were down. It suggests that maybe some of the momentum in the fourth quarter will carry into the new year,” said J.P. Morgan economist Michael Feroli.
The employment component rose to 55.1 from 51.8 in November, the highest since June.
“Manufacturing might be a kind of small part of the employment picture, but it’s consistent with some of the other indicators which should show it (December employment) to be a good report,” Feroli said.
Feroli said he is currently expecting December nonfarm payrolls of 185,000, above the consensus 150,000. The report is released Friday morning.
Pierpont Securities Chief Economist Stephen Stanley said while he does not see the employment component of the ISM to be that predictive of jobs, he does see the improvement in the index as a measure that could reflect a better hiring environment.
“There’ve been a lot of encouraging signs over the last month or two. Claims numbers are lower, certainly. The confidence board indicators are better. That’s something people look at, and it just seems anecdotally that things are getting better,” Stanley said. “I think there’s every indication the jobs market is improving.”
He said he forecast nonfarm payrolls at 135,000 at December but expects to revise up his preliminary number.
“I don’t expect any explosion in hiring over the next couple of months, but I think we’ll keep looking at incremental gains,” he said.
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There was a strong sign on Thursday that the US economy is not yet headed for recession as manufacturers said that activity was still increasing.
The Institute for Supply Management’s survey of purchasing managers – the single most important measure of the sector’s health – reported an index down to 50.6 in August from 50.9 in July. Readings above 50 signal expansion.
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ON THIS STORY
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US consumer confidence at two-year low
The ISM number may provide a partial answer to a question that has been taxing officials at the Fed and the White House: whether the dramatic August slump in surveys of business and consumer confidence was a one-off blip in response to dramatic headlines about debt debates and downgrades, or a signal of more serious economic malaise to come.
Surveys from Europe and Asia on Thursday also showed some of the slowest expansion in manufacturing activity, orders and jobs since the world economy was crawling out of recession in mid-2009. But the US number on ISM did not follow regional indices – such as that of the Philadelphia Fed – that had pointed to outright decline.
“The data clearly tell you that the best-case scenario is slowing growth,” said Holden Lewis, commercial and industrial analyst at BB&T Capital Markets. “It is somewhat positive that the US measure stabilised in the low 50s instead of a steady march lower.”
However, he said the index indicated a “flattish type of environment that can be expected for the beginning of 2012”.
A puzzle in the recent survey data is that companies and consumers seem to be even more pessimistic about the economy than measures of their incomes, wealth and profits would normally suggest.
Both main measures of consumer confidence plunged in August from already low levels. The University of Michigan index fell below 60, something it has only done twice before in recent decades, during the 1981 and 2008 recessions.
The general conclusion of analysts is that once final data arrives on the things that really drive consumers, such as their wage and dividend income, then confidence adds relatively little as an explanation for how much people spend.
But it takes years to finalise those measures for the national accounts and surveys are available in close to real time. “It’s our experience that, whenever it falls that much, there is an impact on spending down the road,” said Richard Curtin, director of the Michigan survey.
Mr Curtin also says that his index is “most predictive at turning points”. The big question is whether the latest drop is such a turning point or whether it reflects a shock that will quickly fade away.
The fall in consumer sentiment may be reflecting changes in wealth, such as big declines in the stock market or higher oil prices, but it seems unlikely that the labour market weakened enough in July and August to produce the huge plunge in confidence.
“It is clearly possible that the debt limit debate may have weighed on consumer confidence temporarily, and that households may not immediately pull back on spending in response to this news,” noted Goldman Sachs analyst Zach Pandl in a recent report on the divergence between ‘soft’ surveys and ‘hard’ data such as retail sales.
But Mr Curtin argues that there is a message from the consumer confidence data, and even if it is not one of recession, it is one of slow growth. If what upset consumers was news that the government finances are a mess, he notes, there is little reason for them to have changed their minds.
The ISM report showed that new orders continued to contract, though at a slower pace than in July, rising to 49.6 from 49.2. Production growth swung to contraction, falling to 48.6. Exports and imports both continued to expand, while inventories, which had been cut back in July, grew in August.
Manufacturers continued to add jobs for the 23rd month running, but the rate of expansion slowed to 51.8 from 53.5.
“The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers’ confidence and willingness to place orders, at least in the short term,” said Bradley Holcomb, chair of the ISM’s survey committee.
The manufacturing data followed a labour department report showing that US jobless claims fell back last week as the effects of a telecoms group workers’ strike faded. But the jobs market showed no signs of picking up amid a stagnating economy.
Initial claims for unemployment insurance dropped to 409,000 in the week ending August 27 from an upwardly revised 421,000, in line with market expectations. First-time claims had been elevated in the previous two weeks by a strike at Verizon Communications that has since ended.
David Sloan, economist at IFR Economics, said: “The latest number, while down only because special factors faded, suggests only tentative signs of an accelerated labour market deterioration in response to recent market turmoil.”
The lingering impact of strike action was apparent in the four-week moving average of new claims, which edged up to 410,250 – well above the level seen consistent with a healthy labour market.
Economists have pared their forecasts for the government’s employment report, due on Friday, with projections now showing the economy added just 70,000 jobs in August – well below the 117,000 new positions created in July. The unemployment rate is forecast to remain at an elevated 9.1 per cent.
As US economic growth has stagnated at an annualised rate of 1 per cent in the second quarter, President Barack Obama has come under increased pressure to take steps to stimulate growth and reduce unemployment.
Amid heightened tensions between the White House and Republican leaders, Mr Obama is due to present a new economic plan to Congress next Thursday. His speech is expected to include a request to extend a payroll tax cut for middle-class workers, big investments in infrastructure and a push to pass stalled trade deals.

Chicago Tribune – President Barack Obama is naming a number of prominent Chicagoans to the board of Skills for America’s Future, a program designed to give community college students training for manufacturing jobs.

The new board members include Motorola Solutions Chief Executive Greg Brown; Penny Pritzker; Brad Keywell, one of the co-founders of Groupon Inc. who runs early-stage technology investment firm Lightbank; and Ellen Alberding, president of The Joyce Foundation.

Obama is expected to announce an expansion of the Skills for America’s Future initiative at an event later Wednesday at Northern Virginia Community College. The program was launched last year by the Aspen Institute and The Manufacturing Institute, the non-profit arm of the National Association of Manufacturers.

The NAM will announce a program to “help provide 500,000 community college students with industry-recognized credentials that will help them get secure jobs in the manufacturing sector,” according to a White House statement.
Copyright © 2011, Chicago Tribune

WGNtv.com – EAST PEORIA, IL— Illinois Gov. Quinn Pat Quinn met with the head of Caterpillar Tuesday to smooth over hard feeling about the state’s new higher tax rates.

Quinn and Caterpillar CEO Doug Oberhelman met at the company’s headquarters in East Peoria.

Oberhleman sent a letter to Quinn last month telling the governor that several states were trying to lure the heavy equipment-maker away from Illinois after the state raised the corporate and income tax rates to balance the budget.

Oberhelman says he wasn’t threatening to move Caterpillar out of Illinois but was just trying to shed some light on concerns about the state’s policies.

He says the company plans to stay in Illinois while working with the governor to improve the state’s business climate.

Quinn said after the meeting that he understands Illinois must do more to improve its economy and image.

The governor says he wants to overhaul the workers’ compensation system and encourage more exporting of Illinois goods.

Oberhelman has agreed to serve on a council that will try to strengthen the export business

fastest pace in nearly seven years last month, but a sudden rise in the price of raw materials could threaten their profits.

The Institute for Supply Management said Tuesday that its index of manufacturing activity rose to 61.4 in February, up from 60.8 the previous month. That’s the highest reading since it reached the same level in May 2004. The ISM’s index bottomed out at 33.3 in December 2008, its lowest point in nearly 30 years.

Any reading above 50 indicates expansion. The manufacturing sector has now expanded for the past 19 months.

The rebound in manufacturing is gaining momentum, the report showed. The new orders index rose to a seven-year high. A measure of order backlogs rose to its highest level in a year. And inventories are shrinking, both at manufacturers and their customers. All are signs that factory output is likely to keep growing.

“The recovery in the sector is both robust and on track,” said Ian Shepherdson, an economist at High Frequency Economics.

Solid growth overseas, particularly in developing countries such as China, Brazil and India, has also helped by boosting exports. A measure of export orders rose to its highest level in more than 22 years.

And an employment index in the ISM’s report topped 60 for only the third time in a decade, evidence that manufacturers are adding employees at a rapid clip.

But prices paid for steel, plastics, rubber and other raw materials rose for a third straight month, a sign that increasing production costs could spark higher inflation.

“Growth may not be as robust as we would like because of these rising commodity prices,” said Brian Levitt, an economist at OppenheimerFunds.

Pricier gas and food reduce the amount of money consumers can spend on discretionary items such as computers and other electronics. Manufacturers may also eat some of the higher costs, which would cut into profit margins, Levitt said.

“While there are many positive indicators, there is also concern as industries related to housing continue to struggle and the prices index indicates significant inflation of raw material costs across many commodities,” said Norbert Ore, chair of the ISM’s survey committee.

On Capitol Hill, Federal Reserve Chairman Ben Bernanke said Tuesday that rising energy prices “don’t pose a significant risk to the recovery or to overall inflation.”

But a prolonged rise in the price of oil or other commodities would represent a “threat” to economic growth, Bernanke acknowledged.

The price of materials is another challenge for the struggling construction industry. The Commerce Department said Tuesday that spending by builders fell in January to a seasonally adjusted annual rate of $791.8 billion.

That’s slightly above the decade low of $791.5 billion hit in August, and about half of the $1.5 trillion level that economists believe would signal a healthy construction sector. It could be another four years before construction recovers to that level, economists say.

Factories have rebounded at a healthy clip since the recession ended in June 2009. Americans have resumed spending on cars, appliances and other big-ticket items and businesses are investing in more industrial machinery and other heavy equipment.

U.S. automakers are reporting healthy sales increases, after stumbling badly in the recession. General Motors Co. said Tuesday that its February sales soared 49 percent.

Deere & Co., the world’s largest manufacturer of agriculture equipment, said last month that its quarterly net income more than doubled as rising prices for corn, wheat and other crops encouraged U.S. farmers to buy new machinery.

The Institute for Supply Management, based in Tempe, Ariz., compiles its manufacturing index by surveying about 300 purchasing executives across the country.

AP Economics Writers Jeannine Aversa and Martin Crutsinger contributed to this report.

Bloomberg – American factories unexpectedly received more orders in December, led by demand for capital equipment that was stronger than reported last week.

The 0.2 percent increase in bookings topped the median forecast of economists surveyed by Bloomberg News which called for a 0.5 percent drop, figures from the Commerce Department showed today in Washington. Orders for non-defense capital goods excluding aircraft rose 1.9 percent, up from the 1.4 percent gain the government estimated in last week’s durable goods report.

Manufacturers like Caterpillar Inc. are reporting increased demand from U.S. consumers, businesses and customers in developing countries like Brazil and China. Tax breaks for business investment passed last month may provide further momentum to the factory rebound this year.

“We’re seeing a pretty solid rebound in demand for manufactured goods,” Russell Price, a senior economist at Ameriprise Financial in Detroit, said before the report. “That is exactly what we need to see at this point to make this a self- sustaining recovery.”

The median forecast was based on a survey of 67 economists. Estimates ranged from a drop of 1.5 percent to a 2 percent increase. The gain in bookings last month followed a revised 1.3 percent November increase that was almost twice as big as previously calculated.

Other reports today showed worker productivity unexpectedly increased in the fourth quarter at a faster rate, and fewer Americans that projected filed claims for unemployment insurance benefits last week.

More Productive

The measure of employee output per hour rose at a 2.6 percent annual rate, compared with a revised 2.4 percent gain in the previous three months, figures from the Labor Department showed. Labor expenses fell for fifth time in six quarters, capping the first back-to-back yearly declines in almost five decades.

Another Labor Department report showed applications for jobless benefits decreased by 42,000 to 415,000 in the week ended Jan. 29, led by southern states that were affected by storms in prior weeks.

Manufacturing, which accounts for 11 percent of the economy, expanded in January at the fastest pace in more than six years, a report from the Institute for Supply Management showed Feb. 1.

The Commerce Department report showed orders for durable goods, which make up over half of total factory demand, fell 2.3 percent.

Business Investment

The increase in bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, followed a 3.3 percent gain in November that was also larger than previously estimated. Demand for communications gear and machinery led the advance last month.

Shipments of such equipment, which are used in calculating gross domestic product, increased 2 percent after a 1.5 percent increase in November. Both figures were also stronger than reported last week.

Bookings for non-durable goods, including petroleum and chemicals, climbed 2.3 percent, today’s report showed, which may reflect rising costs.

Factory inventories rose 1.1 percent in December, and manufacturers had enough goods on hand to last 1.26 months at the current sales pace, down from 1.27 the prior month.

The business spending that helped lead the economy out of recession may gain a second wind from a new tax provision that allows companies to depreciate 100 percent of investments in capital equipment this year, according to Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.

Growing Exports

Caterpillar, the world’s largest maker of construction equipment, posted fourth-quarter profit that topped analysts’ estimates as sales advanced in China, Australia and Latin America.

“Over the past quarter, we’ve become somewhat more positive about economic growth in the developed economies of North America, Europe, and Japan,” Mike DeWalt, director of investor relations at Caterpillar, said on a Jan. 27 teleconference. “And we’re now expecting the U.S. economy to grow about 3.5 percent in 2011.”

The U.S. economy grew at a 3.2 percent annual rate in the fourth quarter of 2010, led by the biggest gain in consumer spending since 2006, the Commerce Department reported last week tomorrow.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

The Economic Times – BEIJING: The Purchasing Managers Index (PMI) of China’s manufacturing sector dropped to 53.9 per cent in December, down 1.3 percentage points from November.

The figure marked the 22nd straight month in which the index was above the boom-and-bust line of 50 per cent.

Before dropping in December, the index had been rising for four consecutive months, the China Federation of Logistics and Purchasing said.

The drop was seen as a delayed response to declining commodity prices in November, as the November PMI did not reflect that trend, said Liu Tiejun, an analyst with Haitong Securities .

PMI comprises of a package of indices to measure performance of the country’s manufacturing sector.

A reading above 50 per cent indicates economic expansion, while that below 50 per cent indicates contraction.

Bloomberg – Caterpillar, the world’s largest construction and mining equipment maker, moved aggressively to capitalize on demand in emerging markets Monday with a $7.6 billion buyout of Bucyrus International.

Bucyrus makes surface mining equipment used for coal, copper, iron ore, oil sands and other minerals.

With a grinding economic recovery ongoing in the West, global companies like Caterpillar Inc. have driven further into China, India and Brazil, where the appetite for raw materials used in construction and mining are strong.

Caterpillar said last month its third-quarter profit doubled, thanks in large part to growth in those markets.

With the Bucyrus deal, Caterpillar seeks to expand its footprint in countries that are “improving infrastructure, rapidly developing urban areas and industrializing their economies,” the company said Monday. The deal will also significantly expand Caterpillar’s line of mining equipment and double its mining revenue.

Caterpillar and Bucyrus officials said mining companies will also benefit from the deal because they’ll be able to purchase much of their equipment and parts from a single supplier with less hassle and lower costs.

“This fits completely into the strategy of our customers,” Bucyrus CEO Tim Sullivan said.

After years of cutting costs, industry experts had been waiting for a major acquisition like the one Caterpillar announced.

“I think Caterpillar is definitely doubling down, not just on emerging markets, but on commodities in general,” Morningstar analyst Adam Fleck said. “Caterpillar is suggesting that we’re in the very early innings of the commodity price rebound.”

Specifically, Fleck thinks Caterpillar is focusing on coal, of which China is a massive importer.

To land Bucyrus International Inc., based in South Milwaukee, Wis., Caterpillar will pay $92 per share, a 32 percent premium to Bucyrus’ closing price on Friday. The deal, which is valued at $8.6 billion including debt, is expected to close in mid-2011. Caterpillar plans to base its mining division in South Milwaukee.

Shares of Bucyrus jumped 29 percent to $89.75 in afternoon trading.

Caterpillar made drastic cuts during the recession, vowing then that it would be in a better position when the economy rebounded. It cut 37,000 full-time, contract and part-time workers, though it’s since hired back about 15,000 people.

The company now appears ready to make good with a market share grab that could put it in a commanding position in places where the economy has rebounded.

“Our performance through the global economic turmoil of 2008-2009 allowed us to emerge with a strong balance sheet and the ability to make strategic investments in companies like Bucyrus,” Chairman and CEO Doug Oberhelman said.

There is little overlap between the products Caterpillar and Bucyrus offer now, so Caterpillar still plans to invest nearly $700 million to expand production of its own mining trucks. That investment was announced earlier this year.

“We think it’s a great time to invest in mining,” Oberhelman said.

The Peoria, Ill. company said last month it expects the global economy to grow by about 3.5 percent next year, on par with economists’ forecasts. But the company predicts developing regions will grow at about double that rate. And even in the emerging economies where growth is slower, Caterpillar said the replacement of worn out machinery will drive sales even before those economies markedly improve.

The deal, which got the go-ahead from both company boards, still requires approval by regulators and Bucyrus shareholders. Caterpillar predicted the deal would add about $400 million a year to its operating profit, starting in 2015, through sales growth and some cost savings.

Fleck said he does not anticipate serious regulatory hurdles for the deal.

AP Business Writer Josh Funk contributed to this story from Omaha, Neb.

Caterpillar Inc.: http://www.cat.com

Bucyrus International: http://www.bucyrus.com

NEW YORK (AP) – Manufacturing activity expanded in September for the 14th straight month, but at a slower rate than in the previous month, according to an industry trade group.

The Institute for Supply Management said Friday that its manufacturing index read 54.4 in September, down from 56.3 in August. A reading above 50 indicates growth.

Strong growth in the industrial sector has helped lift the country out of the recession. Last month’s report was better than expected and triggered an explosive rally on Wall Street. That kicked off the best September for the stock market since 1939. The Dow Jones industrial average gained almost 8 percent for the month.

The latest report said that companies increased production in September and were willing to hire workers to fill vacant positions.

But it also noted that there’s slower gains in new orders — a gauge of future business — and shrinking company backlogs. Each of those could hamper growth in the coming months.

(Bloomberg) — Manufacturing in the U.S. expanded at a faster pace than forecast in August, signaling the industry that led the recovery will keep it from faltering.

Caterpillar Inc. is among manufacturers benefiting as companies replace aging machines, helping to support the expansion. The gains may partially compensate for a slowdown in consumer spending and sluggish housing market that are causing the world’s largest economy to cool in the second half of the year.

“The manufacturing sector has maintained its momentum at least through August,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. The report “makes clear the economy is not slipping into recession any time but it’s still reasonable to be concerned about where we’re heading over the next three to six months.”

Construction spending in July fell twice as much as forecast, led by a slump in homebuilding that will depress economic growth, Commerce Department figures showed today. The 1 percent drop brought spending to $805.2 billion, the lowest level in a decade, after a revised 0.8 percent decrease in June that wiped out a previously estimated gain.

Stocks Advance

Stocks extended gains after the manufacturing figure, with the Standard & Poor’s 500 Index rising 2.5 percent to 1,076.02 at 10:33 a.m. in New York.

Companies in the U.S. unexpectedly cut employment in August, data from a private report based on payrolls showed. Employment fell by 10,000, according to figures today from ADP Employer Services.

Estimates in the Bloomberg survey of 78 economists before the manufacturing report ranged from 49.9 to 56.

Manufacturing in other parts of the world was mixed in August. China’s purchasing managers’ index rose to 51.7 last month from 51.2, a government-backed report showed. A separate measure released by HSBC Holdings Plc and Markit Economics also increased.

Growth at Europe’s factories cooled and export demand dropped to the lowest in seven months. A gauge of manufacturing in the 16-nation euro region declined to 55.1 from 56.7 the previous month, London-based Markit Economics said.

Orders, Production

The ISM’s U.S. new orders measure fell to 53.1 from 53.5, while the production index increased to 59.9 from 57.

The employment gauge rose to 60.4, the highest since December 1983, from 58.6 in July and the index of export orders fell to 55.5 from 56.5 the prior month.

The measure of orders waiting to be filled fell to 51.5 from 54.5, and the index of prices paid rose to 61.5 from 57.5.

The inventory index increased to 51.4 from 50.2 in July. A figure higher than 50 means manufacturers are increased stockpiles.

Manufacturing, which accounts for about 11 percent of the economy, spearheaded the recovery from the worst recession since the 1930s as rising export demand led companies to ramp up spending on equipment and to replenish stockpiles.

Regional Reports

Recent regional factory reports showed the manufacturing expansion weakening. The Federal Reserve Bank of Philadelphia’s general economic index contracted this month for the first time in a year, while the New York Fed’s gauge rose less than forecast.

The economy is a top issue for voters in the November congressional elections, and polls show the public is increasingly skeptical of President Barack Obama’s performance. Public approval for his handling of the economy was at 41 percent in an Aug. 11-16 Associated Press-GfK survey, an all- time low and down from 50 percent last July.

Fed Chairman Ben S. Bernanke last week said the central bank “will do all that it can” to ensure a continuation of the economic recovery, and outlined steps it might take if growth slows.

“Investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace,” Bernanke said.

Consumer Demand

Intel Corp. last week cut its third-quarter revenue projection to $11 billion from the previously forecast $11.2 billion to $12 billion. The world’s biggest chipmaker cited weaker-than-expected consumer demand for personal computers in mature markets as the reason for the adjustment.

Cisco Systems Inc., the world’s largest maker of networking equipment, in August forecast first-quarter sales that missed analysts’ estimates. Chief Executive Officer John Chambers said the San Jose, California-based company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy.

Some U.S. manufacturers are benefiting from growth overseas. Caterpillar, the Peoria, Illinois-based maker of construction and mining equipment, may add as many as 9,000 workers worldwide this year, Chief Executive Officer Doug Oberhelman said at a meeting with analysts Aug. 19.

–Editors: Vince Golle, Brendan Murray

To contact the reporter on this story: Courtney Schlisserman at cschlisserma@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net