U.S. Economy: Factories Expand More Than Forecast
Manufacturing in the New York region grew in August for the first time in more than a year, reinforcing signs the worst recession since the 1930s is nearing an end.
The Federal Reserve Bank of New York’s general economic index climbed to 12.1, higher than forecast and the first expansion since April 2008, the bank said today. Readings above zero for the Empire State index signal manufacturing is growing.
Today’s report, the first regional factory measure for the month, indicates the government’s stimulus plan and record inventory cutbacks are starting to help companies such as ITT Corp. rebound. Economists project growth will resume this quarter, helped by stabilization in manufacturing and housing.
“Inventories were drawn down to such amazingly low levels that companies need to start bringing them back,” said Tom Porcelli, a senior economist at RBC Capital Markets in New York. “We are coming out of the recession. It’s probably over at this point.”
Stocks fell around the world as investors speculated the recent rally in riskier assets had outpaced prospects for economic growth. The Standard & Poor’s 500 index was down 2.2 percent at 1:10 p.m. in New York to 981.82. The yield on the benchmark 10-year note was 3.49 percent, down from 3.57 percent at the end of last week.
Exceeds Forecast
Other reports today showed foreign investors renewed purchases of U.S. financial assets in June and builder sentiment climbed this month to the highest level in more than a year.
Investors from Japan and the U.K. increased demand for Treasuries while China pared its holdings, a report from the Treasury Department showed. Total net purchases of long-term equities, notes and bonds were $90.7 billion in June, compared with net sales of $19.4 billion a month earlier.
The National Association of Home Builders/Wells Fargo confidence index climbed to 18, matching the median forecast by economists and reaching the highest level since June 2008, the Washington-based group said. A reading below 50 means most respondents view conditions as poor.
Economists projected the Empire State index would rise to 3, according to the median of 41 estimates in a Bloomberg News survey. Forecasts ranged from 8 to minus 5.
Cohen, Recession
“We think the recession is ending right now,” Abby Joseph Cohen, senior investment strategist at Goldman Sachs Group Inc., said in an interview today on Bloomberg Radio. The economy may grow by 3 percent in the next couple quarters and by 1.5 percent to 2 percent next year, Cohen said.
The August reading on the New York Fed index was the highest since November 2007, the month before the recession began. The index was at minus 0.6 in July.
Manufacturers account for 6 percent of New York’s $1.1 trillion economy paydayloan.
The New York Fed’s report showed orders and shipments increased, while inventories and employment contracted at a slower pace.
The index of prices paid climbed to 13.8, while the gauge of prices received dropped to minus 12.8, signaling that factories are not able to pass along increasing raw-material costs to their customers.
Factory executives in the New York Fed’s district, which encompasses New York state, northern New Jersey and one county in Connecticut, turned more optimistic about the future. The gauge measuring the manufacturing outlook rose to 48.2, the highest level since July 2007, from 34.
Production Rebounds
Chrysler Group LLC, the U.S. automaker run by Fiat SpA, will make more light trucks than it had planned in the second half to meet growing demand, a person with knowledge of the situation said last week. Chrysler plans to run two plants on overtime and is operating a third shift at another factory to restock dwindled inventory on dealer lots, said the person.
Businesses in the region that are raising forecasts include White Plains, New York-based ITT. The company said on July 31 that 2009 profit will be higher than its prior forecast after second-quarter expenses fell.
“There’s signs of life” in some markets, Chief Executive Officer Steve Loranger said on a conference call on July 31.
Loranger said ITT’s municipal water business has begun to stabilize as federal economic-stimulus money starts trickling in. Benefits from the stimulus plan aren’t likely to aid the company’s results until next year, he said.
Stimulus Impact
“We’re still not forecasting any significant stimulus benefit this year because the actual distribution of those funds has been very slow,” Loranger said. “We certainly will get our fair share.”
Industrial production rose for the first time in nine months in July as the federal “cash-for-clunkers” program spurred demand for cars and automakers completed mid-year overhauls of their factories, a Fed report showed last week.
The auto plan, which provides cash incentives for fuel- efficient cars, already is boosting vehicle sales and is likely to help lift production this quarter.
A report from the Philadelphia Fed, due on Aug. 20, may show manufacturing in that region shrank this month at the slowest pace in almost a year, according to a Bloomberg survey.
A Bloomberg monthly survey of economists showed the economy will expand 2 percent or more in four straight quarters through June 2010, the first such streak in more than four years, as the effects of the government’s fiscal stimulus broaden.