Export orders drive factory gains

U.S. industrial activity expands at best pace in 2½ years

Employees at Sheffield Platers Inc. work on the factory floor in San Diego in October. U.S. factory activity expanded in October despite a 16-day partial shutdown of the federal government.
Employees at Sheffield Platers Inc. work on the factory floor in San Diego in October. U.S. factory activity expanded in October despite a 16-day partial shutdown of the federal government.

WASHINGTON - U.S. factory activity expanded in October at the fastest pace in 2½ years, suggesting that the 16-day partial shutdown of the government had little effect on manufacturers.

Instead, overseas demand and healthy U.S. auto sales appear to be supporting factory output. The housing recovery is also lifting the furniture and wood-products industry despite a recent slowing in home sales.

“We’ve become accustomed to the way Washington operates in the past couple of years and assume that it will get resolved eventually, however painfully,” said Bradley Holcomb, head of the survey committee of the Institute for Supply Management, a trade group of purchasing managers that on Friday reported a solid manufacturing figure for October.

The group’s manufacturing index rose to 56.4 from 56.2 in September. A reading above 50 indicates growth.

“The government closure didn’t have much effect on manufacturing - this is a modest pace of growth and fairly well-sustained,” said Terry Sheehan, an economic analyst at Stone & McCarthy Research Associates in Princeton, N.J. “We actually see some increase in the export orders, so it’s possible that some of the slowness in the global economy is beginning to ease.”

Factories also expanded in Europe last month, though at a slightly slower pace, according to surveys in that region. Manufacturing indexes have picked up in China, Japan and South Korea.

The overseas strength is increasing demand for U.S. factories. A measure of export orders jumped to its highest level in nearly a year and a half in October, the trade group’s report said.

“The outlook for manufacturing looks far more constructive now than it did over the past several months, in light of the improving global backdrop,” said Michael Dolega, an economist at TD Economics.

U.S. factory activity has now risen at an increasingly fast pace for five straight months, according to the trade group’s index. In October, a measure of new orders rose slightly. And a gauge of production fell but remained at a high level. Factories added jobs, though more slowly than in September.

The shutdown did depress activity at some companies that make metal products and electrical equipment. And though the survey’s findings suggest stronger output in the coming months, the most recent measures of factory production remain tepid.

“The strength of this hasn’t yet been reflected in actual manufacturing output,” said Amna Asaf, an economist at Capital Economics.

On Monday, the Federal Reserve said factories barely increased their output in September. Automakers produced more. But that gain was offset by declines at companies that make computers, furniture and appliances.

Companies saw reduced demand in September for industrial machinery, electrical equipment and other core capital goods that signal investment, the government said last week. And August’s figures for those orders were revised down.

Analysts were encouraged by a survey of companies in the Chicago region that was released Thursday. It found that the companies expanded at their fastest pace in more than two years in October. New orders jumped, and hiring also rose.

Information for this article was contributed by Michelle Jamrisko of Bloomberg News.

Business, Pages 31 on 11/02/2013

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