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Manufacturing Grew Less Than Forecast in December

Friday, 02 January 2015 11:11 AM

Manufacturing in the U.S. cooled in December, settling into a more sustainable pace of growth as the year drew to a close.

The Institute for Supply Management’s factory index dropped to a six-month low of 55.5 from 58.7 in November, a report from the Tempe, Arizona-based group showed today. The reading in October matched a three-year high. Figures greater than 50 indicate growth and the median forecast in a Bloomberg survey of economists called for a December reading of 57.5.

A slowdown in orders growth indicates companies are beginning to scale back capital spending plans as overseas markets slow and lower oil prices hit American oil producers. At the same time, U.S. factory floors will probably stay busy early this year as employment gains and cheap gasoline boost consumer spending.

“We’d get more acceleration in manufacturing if there was any pickup in global markets,” Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York, said before the report. “The manufacturing outlook is still pretty solid. As the labor market strengthens and consumer sentiment improves, we’ll see stronger demand.”

The purchasing managers’ index averaged 55.8 in 2014, the best for any year since 2010. Economists’ estimates in the Bloomberg survey for the December index ranged from 54 to 59.3.

Stocks fell after the report, with the Standard & Poor’s 500 Index dropping 0.3 percent to 2,053.55 at 10:45 a.m. in New York.

Eleven of 18 industries surveyed by the purchasing managers’ group posted growth, led by printers, metal producers and furniture makers.

‘Strong Number’

The December reading is a “still strong number,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. The drop is “certainly nothing to be concerned about.”

The ISM group’s new orders gauge declined to 57.3 in December from 66. Some chemical products makers said sales are slowing as customers reduce inventory in anticipation of lower prices, according to the purchasing managers group.

“Buyers are holding back,” Holcomb said.

The group’s measures of production and order backlogs dropped, while an index of export demand suffered its biggest one-month decline in 2014. The factory employment measure increased from the prior month.

Prices Paid

A slump in crude oil helped push down input costs for factories last month. The ISM’s index of prices paid declined to 38.5, the lowest since June 2012. Thirteen manufacturing industries reported paying lower prices in December, led by chemicals, primary metals and plastics.

Slower overseas economies are also restraining U.K. factories. Markit Economics said its Purchasing Managers Index dropped to 52.5 in December, the weakest in three months, from 53.3. Euro-area manufacturing held close to a 17-month low reached in November, the London-based group said today.

The industry in China was the weakest in 18 months, according to the latest government index of factory purchasing managers.

Growth in the U.S. will probably keep orders flowing into factories in coming months. The economy expanded in the third quarter at a 5 percent annualized pace, the fastest since the three months ended in September 2003, according to Commerce Department data. Consumer spending, which accounts for almost 70 percent of the economy, grew at a 3.2 percent pace.

Auto Sales

More hiring and cheaper gasoline are helping drive Americans’ purchases. Carmakers are among manufacturers poised to keep benefiting. U.S. auto sales rose to an annualized pace of 17.1 million in November from 16.4 million a month earlier, based on data from Ward’s Automotive Group.

“By any measure, households are reaping significant disposable income gains each week at current gas prices,” Emily Kolinski Morris, Ford Motor Co.’s chief economist, told analysts and reporters on a conference call on Dec. 2. The sales figures for December are due to be released next week.

At the same time, cooling overseas markets may hurt some U.S. producers. European Central Bank officials meet on Jan. 22 to consider steps to drive down borrowing costs and revive Europe’s economy. China is on course for the slowest year of growth since 1990, according to a Bloomberg survey. Russia, the world’s biggest energy exporter, this year is facing its first recession since 2009 amid plunging oil prices.

Joy Global Inc., the world’s largest maker of underground mining machinery, said it expects to see further declines in mining-industry investment during a “challenging” 2015.

“Many of our customers remain strained and are deploying capital only on quick-payback, highly profitable projects,” Ted Doheny, chief executive officer, said on a Dec. 17 earnings call.

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Manufacturing in the U.S. cooled in December, settling into a more sustainable pace of growth as the year drew to a close.
manufacturing, economy, forecast, factory
Friday, 02 January 2015 11:11 AM
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