Business activity in the U.S. expanded in June for a ninth straight month, showing manufacturing is overcoming the turmoil in the financial markets. The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.1 this month, in line with the median forecast of economists surveyed by Bloomberg News, from 59.7 in May. Figures greater than 50 signal expansion.
Economies in developing countries are leading the recovery from the worst global recession in the post-World War II era, spurring sales at companies like Deere & Co. that will keep assembly lines running. A cooling pace of gains in coming months may prompt factories to keep stockpiles in line with demand, one reason why the rebound may not accelerate further.
“We’re going to see continued growth in the factory sector as we continue to dig out of the hole from the recession,” said Michael Englund, chief economist at Action Economics in Boulder, Colorado. “But it’s probably at a slower pace going forward.” Englund was among the economists who projected the index would drop to 59.
Economists forecast the gauge would fall to 59, according to the median of 54 survey projections. Estimates ranged from 55 to 62.9.
Another report today showed companies added fewer workers in June than forecast, according to data from a private report based on payrolls.
Payroll Estimate
The 13,000 gain was the smallest since February and followed a revised 57,000 increase the prior month, figures from ADP Employer Services showed. Economists surveyed by Bloomberg News forecast a gain of 60,000, according to the median estimate.
Stocks fluctuated between gains and losses following the reports. The Standard & Poor’s 500 Index rose 0.2 percent to 1,043.4 at 10:05 a.m. in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 2.97 percent from 2.95 percent late yesterday.
The Chicago group’s employment measure climbed to 54.2 from 49.2 in May, and the production gauge rose to 64.2, the highest level since February, from 61.
The gauge of new orders decreased to 59.1 from 62.7. The index of backlogs fell to 50.7 from 52.7.
The gauge of inventories dropped to 46.5 from 56.4, which was the highest level since November 2006.
Less Restocking
A bigger than previously estimated gain in inventories in the first three months of the year suggests restocking will contribute less to growth this quarter. Stockpiles totaled $41.2 billion and added 1.88 percentage points to growth from January through March, according to revised gross domestic product data released by the Commerce Department last week. The government had previously estimated inventories at $33.9 billion.
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 of measure of overall growth. Its members have operations across the country as well as abroad.
Reports earlier this month showed a mixed picture for manufacturing. The Federal Reserve Bank of Philadelphia’s general economic index fell to 8 this month from 21.4 in May, while the New York Fed’s measure increased to 19.6 from 19.1. In both cases, a reading greater than zero signals expansion.
National Data
The ISM is scheduled to release its monthly national factory index tomorrow. The median forecast of economists surveyed projects the gauge dropped to 59 from 59.7 in May. The measure averaged 53.9 in the five years leading up to December 2007, the start of the worst recession since the 1930s.
Sales and inventories “are very much in sync,” Samuel Allen, chief executive officer of Deere & Co., said in an interview June 23 in reference to the manufacturer’s agricultural business. The Moline, Illinois-based company also has started adding stockpiles on the construction side in recent months, he said.
“We do believe the recovery is underway,” Allen said. “We do believe it is moving slowly. We do believe it is on stable ground at this time.”
