Factories busiest since April ’11

Rise in index points to stronger growth, economists say

Airstream Inc. workers assemble a recreational vehicle at the company’s plant in Jackson Center, Ohio, last month. U.S. manufacturers increased production in September, the Institute for Supply Management reported Tuesday.
Airstream Inc. workers assemble a recreational vehicle at the company’s plant in Jackson Center, Ohio, last month. U.S. manufacturers increased production in September, the Institute for Supply Management reported Tuesday.

WASHINGTON - Factory activity expanded last month at the fastest pace in 2½ years, an encouraging sign to economists who say manufacturing could drive economic growth and hiring in the forthcoming months.

The Institute for Supply Management, a trade group of purchasing managers, said Tuesday that its manufacturing index rose in September to 56.2, the highest since April2011. That’s up from 55.7 in August and the fourth straight increase in the index. A reading above 50 indicates growth.

Manufacturers added jobs last month at the fastest pace in more than a year and ramped up production, the survey showed. They also received new orders at a healthy pace, though slower than in August.

U.S. factories are showing signs of picking up after slumping earlier this year. A modest recovery in housing and strong auto sales are pushing up demand for steel and other metals, auto parts, furniture and appliances.

Economists said the strong figures suggest that the annual growth rate in the July-September quarter could be healthier than current forecasts of about 2 percent. The index has averaged 55.8 in the past three months, up from 50.2 in the April-June quarter.

And the strength at factories has the potential to set the stage for even faster growth in the October-December quarter. Some analysts are forecasting growth at an annual rate of up to 3 percent.

“Another stronger than expected showing,” said Jim O’Sullivan, chief U.S. economist at forecasting firm High Frequency Economics. “The data unambiguously point to a pickup in the trend in manufacturing output growth.”

Manufacturers also kept their stockpiles steady after cutting them for two months. Adding workers and keeping supplies on hand are signs of increased confidence and higher production ahead, economists noted.

Still, the growth at factories could be offset by the partial government shutdown that began Tuesday. Late Monday, Congress and the White House couldn’t agree on a spending measure to keep the government open.

Manufacturing is “poised for improvement - inventories are relatively lean, you’re seeing gains in employment,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla. At the same time, a lengthy federal government shutdown may cause “some softness in demand as businesses postpone decisions to invest.”

Bradley Holcomb, chairman of the Institute for Supply Management’s survey committee, said that survey respondents weren’t worried about a possible shutdown last month, but would likely begin to raise concerns if it lasted for long.

Most economists say that a shutdown of just a few days would have little economic effect. But if dragged on for two weeks, it could shave about 0.3 percentage point from fourth quarter growth.

Factories had been hampered by weak growth overseas that lowered demand for U.S. goods. But exports grew last month, though at a slower pace than August. Europe’s economy is slowly recovering after an 18-month recession, and Japan is also growing faster after two decades of stagnation.

Earlier this month, the Federal Reserve said manufacturers increased their output in August by the most in eight years. The gains were driven by a robust month at auto plants.

Still, other data have been mixed. Companies placed only slightly more orders for long lasting manufactured goods in August after a sharp fall in July. But demand for so-called core capital goods rose 1.5 percent, after falling 3.3 percent the previous month. Core capital goods are a good measure of businesses’ confidence in the economy and include items that point to expansion, such as machinery and computers.

Information for this article was contributed by Jeanna Smialek of Bloomberg News.

Business, Pages 25 on 10/02/2013

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