Year: 2011

Reuters
1:04 p.m. CST, February 8, 2011

BOSTON (Reuters) – Strong demand from big emerging markets, particularly China and India, is boosting U.S. manufacturers’ prospects for 2011, a pair of top executives said on Tuesday.

But not everyone in the sector regards the recovery from the worst recession the world has seen in living memory as a sure thing.

“We feel very good about the economy,” said Greg Hayes, chief financial officer at United Technologies Corp . “There’s good news, but we’re not out of the woods yet … It’s going to be a gradual, slow, uneven recovery.”

A top General Electric Co executive sounded a more confident note on the economy in a presentation to investors.

“We feel really good about emerging market demand, really across all of our infrastructure businesses,” said John Rice, a GE vice chairman who oversees the company’s international operations. “We’re starting to see some signs that the economy is rebounding a little bit.”

Rice, recently transferred to Hong Kong and charged with accelerating GE’s growth outside the United States, said the company is changing the way it approaches developing markets. Building on a recent successful test in India, the largest U.S. conglomerate plans to move more higher-ranking executives into emerging markets to speed its decision-making, rather than requiring local executives to consult with headquarters in Fairfield, Connecticut.

The company has also begun designing more equipment, such as medical devices, with emerging-market customers in mind, rather than trying to retool machines made for rich customers.

“You can’t do it by downsizing … what you have,” Rice said. “You have to start with a clean piece of paper.”

Hartford, Connecticut-based United Tech is counting on growth in emerging markets — where it generated more than 20 percent of its revenues for the first time in its history last year — to drive 2011 sales growth, Hayes said.

The world’s largest maker of air conditioners and elevators expects to grow its Indian revenue to $2.5 billion by 2015, up from $500 million last year, Hayes told the same investor conference.

(Reporting by Scott Malone, editing by Gerald E. McCormick)

To mostly positive media reviews, President Obama yesterday addressed executives in what has been billed by the White House as major outreach from Washington to business. His speech received widespread coverage in most major media outlets, some of which also reported on the reaction by business.

ABC World News (2/7, lead story, 2:50, Sawyer) reported that the President “delivered an urgent message to the companies to get in the game, start spending money and hiring workers — throwing down a gauntlet but also trying to build a bridge.” ABC (Tapper) added that “Obama is desperate to get the economy going,” and showed him saying, “So if I’ve got one message, my message is now is the time to invest in America. Now is the time to invest in America. And if there is a reason that you don’t share my confidence, if there is a reason that you don’t believe that this is the time to get off the sidelines, to hire and to invest, I want to know about it. I want to fix it.”

The CBS Evening News (12/7, story 3, 2:25, Couric) said “Obama continued his campaign to improve relations with business,” urging “corporate America to invest the nearly $2 trillion it has saved up and start hiring again. For his part, he President promised to address their complaints about the corporate tax code and burdensome government regulations.”

Bloomberg News (2/8, Brower, Dorning) reports that in his remarks, “Obama said he is doing his part to improve the business climate after a free- trade agreement with South Korea, a deal to extend Bush-era tax cuts, and a State of the Union address that proposed more government support for infrastructure and ‘innovation.'” The President “touched on some of the same themes he struck in his State of the Union address: the need to rebuild and modernize the nation’s transportation and telecommunications systems and take steps that will promote research and innovation in areas such as biotechnology, information technology and clean energy.”

Politico (2/8, Cummings),The Wall Street Journal (2/8, Williamson; subscription required), Financial Times (2/8, Braithwaite; subscription required) and Christian Science Monitor (2/8, Feldmann), among other news outlets, also report on Obama’s speech.

SME Daily Executive Briefing
2/8/2011

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.

Click the pictures to the left for the video.

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.

The economy gained strength at the end of last year as Americans spent at the fastest pace in four years and U.S. companies sold more overseas. The growth is boosting hopes for a stronger 2011.

The Commerce Department reported Friday that growth rose to an annual rate of 3.2 percent in the October-December quarter. That’s an improvement from the 2.6 percent growth in the previous quarter. And it was the best quarterly showing since the start of last year.

The economy has now consistently picked up speed since hitting a rough path in the spring.

NEW YORK/CHICAGO (Reuters) – U.S. manufacturing companies posted higher-than-expected results, as sharply improved margins boosted profits amid strong industrial demand and growth in emerging markets.

Companies including Catepillar Inc., Tyco International Ltd and Eaton Group reported strong sales and earnings, and investors were looking ahead for signs the industrial rebound would begin to affect the wider economy and boost employment.

Catepillar provided an encouraging sign for U.S. jobs but also showed that employment remains one of the main ways companies can control profit margins.

The machinery maker, which slashed nearly 30,000 full-time and contract jobs worldwide during the recession, said it had rehired about 8,200 workers worldwide in 2010, and hired another 11,000 temporary contract workers, half in the United States.

“A lot of that driven by export demand, so that was an increase in employment,” Caterpillar’s head of investor relations, Mike DeWalt, said on a conference call. “But if you look at sales, sales went up quite a bit more than that.”

Caterpillar’s operating margins jumped from 2 percent a year ago to 10 percent in the fourth quarter. Other large industrial names also expanded margins.

Caterpillar shares were up 1.7 percent at $97.33, an all-time high for the industrial bellwether.

Caterpillar reported a stronger-than-expected quarterly profit, lifted by increased sales of its machines in Asia and Latin America and a sharp rebound in demand in North America, especially from mining customers. The company also forecast it would post a 2011 profit near $6.00 per share, which is above the market consensus.

ADDING JOBS

“So far so good,” said Oliver Pursche, president of Gary Goldberg Financial Services, about the earnings season for manufacturing companies. He added that corporate comments on jobs were one of the key factors he was listening for as an investor.

“The more they talk about hiring, the more comfortable we’re going to be with that company. If you’re hiring people, your business is growing.”

Eaton is likely to grow its workforce by a few percentage points this year as markets such as autos, aerospace and non-residential construction recover from recession, the diversified industrial company’s CEO said.

“You’ll see hiring here in the U.S. as well as around the world,” Sandy Cutler told Reuters.

Eaton’s quarterly profit beat expectations on a strong truck market and higher demand for its electrical systems. The maker of hydraulics, truck transmissions and other industrial products forecast record 2011 earnings, set a stock split and announced a 17 percent dividend increase.

Tyco’s quarterly earnings more than doubled, beating Wall Street expectations amid sharply higher profits at the conglomerate’s security business, which includes the former ADT Worldwide service.

Tyco, which said it was close to finalizing acquisitions worth around $500 million, also raised its full-year forecast. Its shares were up 0.8 percent at $45 in afternoon trading. It was one of many stocks trading near multiyear highs.

Industrial shares rose 24 percent last year, lagging only the consumer discretionary sector, according to Standard & Poor’s, which recommends investors stay “overweight” in industrials amid expectations of continued global expansion.

The sector has also outrun the broader stock market in 2011, and a correction could be imminent, S&P said.

As companies keyed to industrial demand continued a trend of beating Wall Street forecasts, investors took profits in some names, like Kennametal Inc. and Timken Co.

Tool maker Kennametal, considered a pure play on industrial production, raised its full-year forecast above Street estimates amid strong demand from industrial and transportation markets. Profit at Timken, maker of bearings and specialty steel, was helped by auto and truck production and an ability to push through higher prices.

Electrical and electronics products maker Hubbell Inc also beat, as did Harsco, which provides products to metals producers.

Conglomerate Danaher Corp. showed sharply higher profits in its industrial components and test-and-measurement segments. It affirmed 2011 earnings targets.

“We expect the global economy to continue to improve in 2011, lead by the emerging markets,” Danaher CEO Larry Culp said on the company’s conference call.

WIDESPREAD OPTIMISM

Optimism among manufacturing executives is widespread. Sixty-three percent are upbeat about U.S. economic prospects over the next 12 months, according to a quarterly survey by PricewaterhouseCoopers. That marked a 28-point increase over the prior quarter.

Still, fewer than half — 48 percent — plan to add employees over the next year, PwC found, partly reflecting concerns about taxes, regulation and soft demand.

Worries about corporate taxes, especially, may keep U.S. companies from significantly boosting capacity until the second half of 2011, said analyst Brian Langenberg of Langenberg & Co. U.S. consumers remain constrained by the housing market.

A reminder that not all is well on the housing front came from the No. 1 homebuilder, DR Horton Inc, which posted a wider-than-expected loss.

“Industrial production is increasing on a global basis,” Langenberg said. “(Manufacturers) need to increase capital spending.

“When do they have to boost capacity? Now. Where? Not necessarily in the U.S.”

(Reporting by Nick Zieminski and James B. Kelleher; Additional reporting by Scott Malone in Boston; Editing by John Wallace, Matthew Lewis, Phil Berlowitz)

By REUTERS
Published: January 27, 2011

Filed at 3:04 p.m. ET