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Business Title: Business Activity in U.S. Expanded Faster in July Business activity in the U.S. expanded in July at a faster pace than projected, signaling manufacturing is driving growth in the world’s largest economy. The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 62.3 this month, exceeding the median forecast of economists surveyed by Bloomberg News, after 59.1 in June. Figures greater than 50 signal expansion. Rising demand in developing countries is lifting factory output and causing manufacturers like Caterpillar Inc. to raise earnings forecasts. The report may help reduce concern an easing in consumer spending would lead to a broader economic slowdown. “Export growth is still pretty strong and domestic demand has shown some gains,” said Jim O’Sullivan, chief economist at MF Global Ltd. in New York. “There probably will be some fading of the inventory boost” that spurred manufacturing, he said. A Commerce Department report today showed growth slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and an easing in consumer spending. Economy Slows The increase in gross domestic product compared with a median forecast of 2.6 percent of economists surveyed by Bloomberg and follows a revised 3.7 percent pace in the first quarter that showed a jump in inventories, according to the report. Business investment climbed at the fastest rate since 1997. Another report today showed the Thomson Reuters/University of Michigan final index of consumer sentiment declined to 67.8 in July, the lowest level since November, posing a threat to the biggest part of the economy. The gauge fell from 76 a month earlier, and compared with a preliminary July measure of 66.5. Stocks erased previous losses after the reports. The S&P 500 Index rose 0.1 percent to 1,102.34 as of 11:04 a.m. in New York. Treasuries climbed, pushing two-year yields to the lowest ever, as the GDP report signaling cooling growth spurred demand for the world’s safest securities. The two-year yield fell 2 basis points, or 0.02 percentage point, to 0.57 percent. Economists forecast the Chicago group’s gauge would fall to 56, according to the median of 53 survey projections. Estimates ranged from 50 to 60. Employment, Production The employment measure rose to 56.6 from 54.2 in June, and the production gauge increased to 65 from 64.2. The gauge of new orders climbed to 64.6 from 59.1. The index of backlogs rose to 57.6 from 50.7. The gauge of inventories increased to 50.8 from 46.5. 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 U.S. and abroad. Other regional factory reports showed manufacturing is decelerating. The Federal Reserve Bank of Philadelphia’s general economic index fell this month to the lowest level since August 2009, while the New York Fed’s measure dropped to the lowest this year. National Measure The ISM’s monthly national factory index, due to be released on Aug. 2, may drop to 54.2 in July from 56.2 the prior month, according to the median forecast of economists surveyed. The measure averaged 53.9 in the five years leading up to December 2007, the start of the worst recession since the 1930s. Caterpillar, the world’s largest maker of construction equipment, this month raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment. “You’ve got strong growth in India and China that provides demand for commodities,” Ed Rapp, chief financial officer of the Peoria, Illinois-based company, said in an interview on July 22. “Most of the mining is happening in the developing parts of the world.”
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