Month: February 2011

By Paul Davidson, USA TODAY

Manufacturers emphatically defied Friday’s lackluster employment report, adding 49,000 jobs last month in what some economists say should signal the start of a surge for the beleaguered industry.
The job gains were the most by manufacturers since August 1998. More impressive, they came despite an otherwise disappointing report that showed employers added a net total of 36,000 jobs in January, far fewer than the 146,000 expected.

Strong job gains by U.S. factories would be a welcome boon to a sputtering job market. Makers led a modest jobs rebound early last year as firms replenished stocks depleted in the slump. But it petered out in August after shelves were refilled and substantially higher customer demand didn’t materialize.

Higher demand is finally kicking in, particularly in emerging markets, says economist Cliff Waldman of research group Manufacturers Alliance/MAPI. And productivity gains that let makers put off hiring last year amid economic uncertainty are wearing thin.

After adding 112,000 jobs in 2010, producers are projected to add 275,000 this year and 300,000 more in 2012, according to the alliance. That would offset some of the 2.3 million losses in the downturn. Those layoffs “were clearly overdone,” Waldman says.

Yet don’t expect the industry to reclaim its former employment. The industry lost nearly 4 million jobs in the 10 years prior to the recession due to technology advances and the flight of jobs to countries with lower costs. Waldman expects those trends to continue.

Last month’s job gains were by makers of durable goods, such as cars, factory gear, metals and computers, much of them exported to overseas businesses. Makers of non-durables such as apparel, food and paper shed 13,000 jobs amid still moderate U.S. consumer demand, Waldman says. Some hiring:

•After keeping its 192-worker staff stable the past few years, Atlas Machine & Supply in Louisville added 10 workers the past 90 days and last month converted two temporary employees to full time. The industrial parts maker increased overtime last year. But Atlas President Rich Gimmel says, “You reach a point of diminishing returns when you work 70, 80 hours a week.” Plus, “The recovery seems to be getting some legs.”

•Ford Motor added 600 workers in Ohio and Michigan since November to speed production of vehicles and engines, spokeswoman Marcy Evans says. U.S. car sales rose to an annual rate of 12.6 million last month from 11 million early last year.

•No. 1 aluminum maker Alcoa said last month it’s re-opening three U.S. smelting plants this quarter that will employ 260. “We see more demand going into aluminum,” CEO Klaus Kleinfeld says.

•Top chipmaker Intel added 3,000 workers last year, about double projections, as demand for servers and notebooks surged.

Under the headline “Economic Data Indicate Strength,” the Wall Street Journal (2/4, Sparshott, Leo, subscription required) reports that service sector growth is rising at a sharp pace, mirroring the performance of the manufacturing sector, while productivity is also on the rise. That may change, and “there is a good chance that productivity will slow further this year, as firms are increasingly forced to hire more workers to expand output,” one economist said. But overall, the predominance of indicators are pointing to stronger economic momentum for 2011.

The AP (2/4) concentrates its reporting on “the US service sector, which employs nearly 90 percent of the work force.” The sector’s increases bode well for the job market. The index from the Institute for Supply Management “rose to 54.5, the highest since May 2006. The employment indexes in the manufacturing and service sector indexes both rose in January, a positive sign that the economy may soon generate more jobs.” And, “the report’s index of new orders jumped to 64.9 last month, the highest in seven years. That’s a sign that services firms will keep growing.”

Under the headline “Data Points To Stronger Growth Momentum,” Reuters (2/4) quotes Robert Dye of PNC Financial Services, who said, “Momentum from the end of 2010 is carrying over. It will be another year of recovery and repair.”

Despite Snow, Retailers See Strong January Sales. The New York Times (2/4, B3, Hauser) reports, “Retailers kicked off 2011 with better-than-expected sales in January, with some relying on discounts to clear merchandise left over from the holiday season.” Overall, “same-store sales rose 4.2 percent in January compared with a 3.3 percent increase in the month a year ago and forecasts of 2.7 percent,” and these gains “followed a holiday shopping season that was the strongest since 2006.” However, “some analysts said that January in general was not considered a good bellwether month for the rest of the year.” And “while the results exceeded forecasts, analysts said there were challenges ahead as rising costs pare profits.”

SME Daily Executive Briefing

Orders for goods jump

CHRISTOPHER S. RUGABER AP Economics Writer

9:36 a.m. CST, February 1, 2011

WASHINGTON (AP) – Factory activity expanded in January at the fastest pace in nearly seven years, as manufacturers reported a sharp jump in new orders.

The Institute for Supply Management, a private trade group, said Tuesday that its index of manufacturing activity rose last month to 60.8. The sector has expanded for 18 straight months, and January’s reading was the highest since May 2004. Any reading above 50 indicates expansion.

The manufacturing sector bottomed out at 33.3 in December 2008, the lowest point since June 1980. It has helped drive growth since the recession ended in June 2009.

Consumers are spending more on autos, appliances and other goods, while businesses have invested in more industrial machinery and computers. Those trends boosted economic growth to a 3.2 percent pace in the October-December quarter, the Commerce Department said last week.

Factories healthy pace of expansion is likely to continue in the coming months. Manufacturing firms surveyed by ISM said their backlog of orders jumped in January, pushing an index measuring that activity to 58 from 47.

U.S. factories are also benefiting from rising overseas sales. The index of export orders jumped to 62 in January, from 54.5 the previous month. That matches a recent peak reached in May.

The employment index also rose, a sign that manufacturing companies are hiring more workers. And the prices paid index, which measures whether manufacturing companies are paying more for raw materials, jumped sharply. That’s a sign that inflation could pick up soon.

If manufacturers are unable to pass on the higher costs, it could cut into their profit margins.

Chicago Purchasing Managers Index Increases to 68.8 in January

Businesses in the U.S. expanded in January at the fastest pace since July 1988, indicating the world’s largest economy has momentum at the start of the year.

The Institute for Supply Management-Chicago Inc. said today its business barometer rose this month to 68.8 from 66.8 in December. Figures greater than 50 signal expansion, and economists projected the gauge would slip to 64.5, based on the median estimate in a Bloomberg survey.

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Orders, production and employment increased as manufacturers such as Catepillar Inc. benefited from a pickup in consumer purchases and stronger export markets in emerging economies such as China. Consumer purchases in the final three months of 2010 were the strongest in more than four years, figures last week showed.

“This fortifies the stability of the recovery,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York. “You definitely see traction from manufacturing going forward.”

Estimates from 41 economists for the Chicago purchasers’ index ranged from 60 to 71.3, according to the Bloomberg survey.

Data today from the Commerce Department showed Americans’ spending rose more than forecast in December. Household purchases increased 0.7 percent, while incomes gained 0.4 percent for a second month, the figures showed.

Stocks held gains after the reports and Treasuries fell. The Standard & Poor’s 500 Index rose 0.5 percent to 1,282.74 at 11:07 a.m. in New York. The yield on the benchmark 10-year note increased to 3.35 percent from 3.32 percent late on Jan. 28.

Orders, Employment

The Chicago group’s production gauge rose to 73.7 from December’s reading of 72.2. The gauge of new orders increased to 75.7, the highest since December 1983, from 71.3. The employment measure rose to 64.1, the strongest since May 1984, from 58.4 the prior month.

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 U.S. and abroad.

Other measures of regional manufacturing have shown strength in January. The Federal Reserve Bank of New York on Jan. 18 said manufacturing expanded in that region this month, and the Philadelphia Fed said two days later that factories grew for a fourth month.

Auto Sales

Automakers are seeing sales pick up. Car purchases in December rose to a 12.53 million unit annual pace, the highest since August 2009, from 12.3 million in November, industry data showed this month.

The ISM’s monthly national factory index, due tomorrow, was probably little changed at 58 in January after 58.5 the prior month. A reading above 50 signals expansion.

A pickup in consumer demand, which accounts for about 70 percent of the U.S. economy, could add to gains in manufacturing. The Commerce Department reported last week that household purchases rose at a 4.4 percent pace in the fourth quarter, the fastest in more than four years, while the economy grew at a 3.2 percent rate.

Consumers may further ramp up spending as they benefit from an $858 billion bill extending all Bush-era tax cuts for two years. The legislation also extended the window for expanded unemployment insurance benefits through 2011, trimmed payrolls taxes and included accelerated tax depreciation for equipment purchases.

The manufacturing industry, which accounts for about 11 percent of the economy, has been at the forefront of the economic recovery that began in 2009.

Caterpillar Profit

Caterpillar, the world’s largest maker of construction equipment, posted fourth-quarter profit that topped analysts’ estimates as sales advanced in China, Australia and Latin America. Revenue climbed 62 percent to $12.8 billion from $7.9 billion a year earlier, the company said last week.

In 2011, sales will exceed $50 billion, compared with $42.59 billion in 2010, according to the company.

“There’s quite a bit of pent-up demand there yet to come,” in North America, Ed Rapp, chief financial officer of the Peoria, Illinois-based company, said last week during a conference call. “The tailwinds come as we get more robust growth.”

To contact the reporters on this story: Alexander Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net.