Chicago index shows business growth eighth month
Business activity in the U.S. expanded in May for an eighth straight month, a sign manufacturing has yet to be affected by the turmoil in financial markets.
The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.7 this month from 63.8 in April, which was the highest level in five years. Figures greater than 50 signal expansion.
Rising sales and lean inventories are prompting companies to boost production and hiring, helping to broaden the economic recovery. Companies such as General Electric Co. and Deere & Co. are among those saying the global economic rebound is strong enough to weather the effects of the European debt crisis.
"Clearly the factory sector continues to move ahead at a very healthy clip though it's slowed somewhat from the torrid April pace," said Richard DeKaser, chief economist at Woodley Park Research in Washington, who correctly forecast the decline. "We're coming down to a more sustainable pace."
Economists forecast the gauge would fall to 61, according to the median projection of 57 economists surveyed by Bloomberg News. Estimates ranged from 55 to 64.2.
Consumer spending in the U.S. unexpectedly stalled in April as Americans used growing wages to rebuild savings, figures from the Commerce Department also showed today.
Spending CoolsPurchases didn't increase for the first time since September and followed a 0.6 percent gain the prior month, indicating an early Easter holiday may have pushed sales into March at the expense of last month. Incomes climbed 0.4 percent for a second month, and the savings rate rose for the first time in four months.Consumer sentiment improved in May, a report today form Thomson Reuters/University of Michigan showed. The group's confidence index rose to 73.6 from 72.2 in April. The final number exceeded a preliminary reading of 73.3 issued earlier this month, indicating the slump in caused was not shaking households.Stocks fell after the reports. The Standard Poor's 500 Index dropped 0.2 percent to 1,101.41 at 10:10 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 3.33 percent from 3.36 percent late yesterday.The Chicago group's measure of new orders fell to 62.7 from 65.2 in April. The index of backlogs decreased to 52.7 from 61.4.The employment gauge dropped to 49.2 from 57.2.Jobs ForecastThe Labor Department is scheduled to release its monthly employment report on June 4. Manufacturers boosted payrolls in each of the past four months, the most successive gains since 2006. Factory employment has grown by 101,000 workers this year.The Chicago purchasers index of production decreased to 61 from 63.1 in April. The gauge of inventories jumped to 56.4, the highest level since November 2006, from 50.1.Economists watch the Chicago index and other regional manufacturing reports for an early reading on the outlook nationally. The Chicago group says its membership includes both manufacturers and service providers, making the gauge a measure of overall growth. Its members have operations across the country as well as abroad.Measures earlier this month from the Federal Reserve Banks of Philadelphia and New York showed manufacturing continuing to expand this month. The Philadelphia Fed's general economic index rose to a five-month high, while the New York Fed gauge showed expansion for a 10th straight month.National IndexThe ISM is scheduled to release its monthly national factory index on June 1. The measure climbed to 60.4 in April, the highest level in six years.One issue that may restrain manufacturing in coming months is the effect of the European debt crisis on U.S. trade. A stronger dollar along with the potential for slower demand from Europe may be a drag on U.S. exports. Economists at Goldman Sachs Group Inc. estimated that the trade effects of the crisis will reduce economic growth by 0.1 percent to 0.3 percent, according to a May 21 note to clients.General Electric Chief Executive Officer Jeffrey Immelt said May 24 that Europe's debt troubles can be fixed and they're not enough to slow a global economic recovery."In Europe, I think this is going to be solvable; it's going to mean slow growth," for the region, Immelt said after his commencement address at Boston College. "I don't think it's enough to slow the recovery, I really don't." He also said the U.S. economy is "very good and improving."Construction StabilizesDeere, the world's largest farm equipment maker on May 19 reported second-quarter profit that topped analysts' estimates and raised earnings and sales forecasts for a second time this year. The company is benefitting from growing demand in the Americas for machinery such as tractors and sig of stabilization in U.S. construction-equipment markets."Our performance, no doubt, reflects some improvement in overall economic conditions," spokeswoman Susan Karlix said on a conference call. "It certainly reflects strong demand for large farm machinery in the United States and other key markets."