Updated September 4 at 4:04pm

Surprise Sept. factory gain precedes shutdown

Bloomberg News
Manufacturing unexpectedly picked up in September, showing American factories were a source of strength for the world’s largest economy before the federal government shut down.

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ECONOMY

Surprise Sept. factory gain precedes shutdown

Posted:

Manufacturing unexpectedly picked up in September, showing American factories were a source of strength for the world’s largest economy before the federal government shut down.

The Institute for Supply Management’s factory index rose to 56.2, the strongest since April 2011, from 55.7 a month earlier, the Tempe, Arizona-based group’s report showed last week. Readings greater than 50 indicate growth.

Assembly lines hummed at companies from appliance and furniture makers to metals and transportation industries as the rebounds in housing and autos spurred growth. To sustain the expansion, manufacturing must now overcome the budget gridlock in Washington that has led to the first partial government shutdown in 17 years, idling about 800,000 federal employees.

“You’re beginning to see a pickup in investment and stronger construction activity from the housing recovery, and those are important,” said Paul Ashworth, chief U.S. economist at Capital Economics NA Ltd. in Toronto and the best forecaster of the ISM index over the past two years according to data compiled by Bloomberg.

Factories around the world are showing some signs of improvement. Euro-area factory output expanded in September for a third month, while confidence among Japan’s large manufacturers in the third quarter was the highest since the early stages of the global credit crisis in 2007, other reports last week showed.

The median forecast in a Bloomberg survey of 84 economists projected the ISM index would fall to 55. Estimates ranged from 52.4 to 57.2. Manufacturing accounts for about 12 percent of the economy.

A partial federal shutdown will cost the U.S. at least $300 million a day in lost economic output at the start, according to Lexington, Mass.-based IHS Inc. While that’s a fraction of the country’s $15.7 trillion economy, and the effects probably will grow over time as consumers and businesses defer purchases and expansion plans. •

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