Manufacturing expands at slowest pace since May

WASHINGTON – American factories expanded in January at the weakest pace in eight months as orders slumped, a sign manufacturing cooled at the start of the year along with the weather.

The Institute for Supply Management’s factory index decreased to 51.3 from 56.5 the prior month, the Tempe, Ariz.-based group’s report showed on Monday. The January figure was less than the most pessimistic forecast in a Bloomberg survey in which the median estimate was 56. Readings above 50 indicate expansion.

The group’s measure of orders declined by the most since December 1980 as “a number” of purchasing managers said adverse weather slowed business. Sustained gains in consumer purchases, improvement in the labor market and a pickup in capital spending will be needed to keep assembly lines humming in the world’s biggest economy.

“The exceptionally cold weather and the harsh snow storms – we all move a little bit slower in those periods and the economy is no different,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Price is the top-ranked forecaster of the ISM index over the past two years, according to data compiled by Bloomberg. Still, “it should be some testament to the economy’s fundamental underpinnings that it was able to expand during such conditions.”

- Advertisement -

Estimates in the Bloomberg survey of 85 economists ranged from 54 to 57.5. Manufacturing accounts for about 12 percent of the economy. The factory gauge averaged 53.9 for all of 2013.

‘Severe weather’

“Comments from the panel this month show a mix of concern over severe weather conditions from the coldest January in many, many years,” Bradley Holcomb, chairman of the ISM’s manufacturing report, said on a conference call with reporters. “The outlook for the rest of the year remains solid. This is a blip on the screen.”

Stocks extended losses after the report, with the Standard & Poor’s 500 Index falling 0.8 percent to 1,767.74 at 10:41 a.m. in New York.

The ISM’s new orders measure plunged to 51.2 last month from 64.4 in December. A gauge of production dropped to 54.8, also the lowest since May, from 61.7. The index of bookings waiting to be filled decreased to 48 in January from 51.5.

The measure of factory employment fell to 52.3 from 55.8 in December.

Less inventory

The inventory gauge decreased to 44 in January, the lowest since December 2012, from 47 the month before, while the index of customer stockpiles also fell to 44 from 47.5. Figures less than 50 means manufacturers are paring stockpiles

Manufacturing growth across the globe was mixed last month. A Chinese manufacturing index dropped to a six-month low, adding to signs that government efforts to rein in excessive credit will slow growth in the economy. The Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing.

In the U.K., factory activity grew at a slower pace than economists projected. A measure of factory activity declined to 56.7 last month from 57.2 in December, Markit Economics said in a report Monday in London. The median forecast of 32 economists was for a reading of 57.3.

Euro-area manufacturing, boosted by factories in Germany and France, expanded faster than initially estimated last month. A Markit index increased to 54 from 52.7 in December. The group’s initial estimate was 53.9 for January.

Colder January

Two areas that have been sources of strength for the U.S. economy may be showing signs of fading as colder temperatures gripped much of the country in December and January.

Extreme weather affected January sales in the Midwest, Southeast and East for Ford Motor Co. and caused some disruptions in production, said Joe Hinrichs, president of the Americas, in a Jan. 30 interview with Bloomberg. He declined to provide a forecast of Ford’s U.S. sales for the month.

Still, the maker of the top-selling pickups in the U.S. plans to increase production by 15 percent at one of its factories building F-Series Super Duty trucks as demand continues to grow. Ford will boost annual capacity by about 55,000 vehicles at its Kentucky truck plant starting April 1, a sign of the “underlying the strength of the economy,” Hinrichs said.

The housing market has also been affected by inclement conditions. A gauge of pending home sales slumped 8.7 percent in December from the month before, the biggest plunge since May 2010, as higher borrowing costs and bad weather held back sales.

Fewer home purchases may also translate into reduced consumption of furniture and appliances.

Among recently reported regional indexes, the Institute for Supply Management-Chicago Inc.’s business barometer decreased to 59.6 in January from 60.8 in December, the group said last week. Readings greater than 50 signal growth.

No posts to display