Manufacturing rebounded in June, showing gains in the U.S. housing market and stronger auto sales are helping stabilize industry.
The Institute for Supply Management’s manufacturing index climbed to a three-month high of 50.9 from 49 in May, the Tempe, Arizona-based group said today. The median forecast of 85 economists surveyed by Bloomberg called for the measure to rise to 50.5. A reading of 50 is the dividing line between expansion and contraction.
Sustained demand for automobiles and housing materials, combined with lean inventories, are underpinning orders and production at the nation’s factories. Fading effects of federal budget cuts along with growth in exports as Europe emerges from recession stand to further benefit manufacturers in the U.S.
“It’s a pretty decent improvement relative to May,” said Daniel Silver, an economist at JPMorgan Chase & Co. in New York. JPMorgan was the top-ranked forecaster of the ISM index in the past two years, according to data compiled by Bloomberg. “The increase in new orders is a positive for production.”
Stocks remained higher after the manufacturing figures and another report showing an increase in construction spending. The Standard & Poor’s 500 Index rose 1 percent to 1,625.28 at 10:20 a.m. in New York.
Construction Spending
Outlays on construction projects rose 0.5 percent in May, led by the strongest expenditures on residential building in more than four years, Commerce Department figures showed today.
Economists’ estimates in the Bloomberg survey for the ISM factory index ranged from 49 to 52. The report showed 12 of the 18 manufacturing sectors reported growth in June, led by makers of furniture.
The production gauge rose to 53.4 last month from 48.6 in May. A measure of new orders increased to 51.9 from 48.8, and the gauge of export demand advanced to 54.5 from 51 the month prior.
Still, the group’s measure of factory employment dropped to 48.7, the lowest since September 2009, from 50.1.
“As new orders and production continue to move forward, we hope to see employment come back into positive territory,” Bradley Holcomb, chairman of the group’s factory committee, said on a conference call today with reporters.
Unfilled Orders
The measure of orders waiting to be filled decreased to 46.5 from 48. The inventory index rose to 50.5 from 49 and a gauge of customer stockpiles declined to 45 from 46. A figure lower than 50 means stockpiles are being reduced.
The index of prices paid rose to 52.5 from 49.5.
Today’s U.S. data followed mixed reports on global manufacturing. In China, a pair of factory gauges fell in June, underscoring a sustained slowdown in the nation’s economy as policy makers seek to rein in financial speculation and real-estate prices.
Manufacturing output in the 17-nation euro area contracted less than initially estimated in June, adding to signs the currency bloc’s economy is starting to emerge from a record-long recession, according to figures from Markit.
Markit’s U.K. factory index rose to the highest level in two years, indicating the recovery is gaining traction.
Manufacturing, which accounts for about 12 percent of the U.S. economy, is getting some support from the housing rebound as rising home values attract buyers, encourage building, and send consumers shopping for furniture, appliances and other household goods.
Construction Improvement
Construction gains in the U.S. and in other parts of the world are giving a boost to industrial companies such as Caterpillar Inc., the world’s largest maker of construction and mining equipment.
“We have a construction business that’s getting better,” said Michael DeWalt, director of investor relations for Peoria, Illinois-based Caterpillar.
“If you look at the three biggest end markets -- U.S., Europe in general and China, with the exception of Europe, I think they’re getting better but they have a lot of room to grow,” DeWalt said at a June 5 conference “Europe hasn’t even started to turn better yet.”
Recent regional factory reports were mixed, with the Federal Reserve Banks of New York and Philadelphia pointing to a rebound and a measure from the MNI Chicago Report falling.
In addition to housing, sustained strength in auto sales is keeping factories busy. Vehicle purchases increased to a 15.24 million annual rate in May, the strongest in three months, according to figures from Ward Automotive Group.
