Business activity in the U.S. expanded in June for a ninth straight month, showing manufacturing is overcoming turmoil in financial markets.
Economies in developing countries are leading the recovery from the worst global recession in the post-World War II era, driving sales at companies including Deere & Co. The pace of manufacturing may start to cool in the absence of stronger employment gains needed to invigorate demand.
“The factory sector is showing some slowing but remains quite resilient,” said Richard DeKaser, chief economist at Woodley Park Research in Washington. “The slowdown in employment we’ve seen in bits and pieces is real and relatively broad-based.”
Economists forecast the gauge would fall to 59, according to the median of 54 estimates, which ranged from 55 to 62.9.
Stocks fluctuated between gains and losses following the reports. The Standard & Poor’s 500 Index rose 0.2 percent to 1,043.36 at 11:05 a.m. in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 2.97 percent from 2.95 percent late yesterday.
ADP Report
Another report today showed companies added fewer workers this month than forecast. ADP Employer Services said private payrolls rose 13,000 in June, the smallest in four months, after a 57,000 increase the prior month. Economists surveyed by Bloomberg projected a gain of 60,000.
The report prompted economists at Credit Suisse to reduce their forecast for Labor Department figures on private employment to an increase of 75,000 from an earlier projection of 115,000.
Companies added 110,000 workers in June, the Labor Department’s July 2 report will show, according to the median forecast of 48 economists in a Bloomberg survey. Including government, employment dropped 125,000 this month, reflecting a decline in federal census workers as the decennial population count began to wind down.
The Chicago group’s employment measure climbed in June, and the production gauge rose to the highest level since February.
‘In Sync’
Sales and inventories “are very much in sync,” Samuel Allen, chief executive officer of Deere & Co., said in an interview June 23 in a reference to the manufacturer’s agricultural business. The Moline, Illinois-based company also has started adding stockpiles on the construction side in recent months, he said.
“We do believe the recovery is underway,” Allen said. “We do believe it is moving slowly. We do believe it is on stable ground at this time.”
Measures of new orders and backlogs fell, while the index of inventories dropped from the highest level since November 2006.
A bigger than previously estimated gain in inventories in the first three months of the year suggests restocking will contribute less to growth this quarter. Stockpiles totaled $41.2 billion and added 1.88 percentage points to growth from January through March, according to revised gross domestic product data released by the Commerce Department last week. The government had previously estimated inventories at $33.9 billion.
Regional Figures
Economists watch the Chicago index and other regional manufacturing reports for an early reading on the outlook nationally. The Chicago group says its membership includes both manufacturers and service providers, making the gauge of measure of overall growth. Its members have operations across the country as well as abroad.
Reports earlier this month showed a mixed picture for manufacturing. The Federal Reserve Bank of Philadelphia’s general economic index fell to 8 this month from 21.4 in May, while the New York Fed’s measure increased to 19.6 from 19.1. In each case, a reading greater than zero signals expansion.
The Institute for Supply Management is scheduled to release its monthly national factory index tomorrow. The median forecast of economists surveyed projects the gauge dropped to 59 this month from 59.7 in May. The measure averaged 53.9 in the five years leading up to December 2007, the start of the worst recession since the 1930s.
By Courtney Schlisserman – businessweek.com
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