New York Factory Index Declines to Five-Month Low (Update1)
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By Courtney Schlisserman
Dec. 15 (Bloomberg) -- Factories in the New York region unexpectedly expanded at the slowest pace in five months in December, indicating manufacturing may provide less of a thrust for the economy in coming months.
The Federal Reserve Bank of New York’s general economic index fell to 2.6 from 23.5 in November, the bank said today. Readings above zero signal manufacturing expansion in the state and parts of New Jersey and Connecticut. In October, the index jumped to 34.6, the highest since May 2004.
Measures of orders, sales and employment all declined during the month, pointing to an uneven pace of expansion in manufacturing, which led the U.S. out of the worst recession since the 1930s. Companies may be limiting orders to ensure the progress they’ve made in paring inventories this year.
“The pace of manufacturing-sector improvement has slowed noticeably,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “Production conditions are now more in equilibrium.”
Futures on the Standard & Poor’s 500 index extended declines after the report, falling 0.5 percent to 1,102.6 at 8:41 a.m. in New York.
Wholesale prices in the U.S. increased more than anticipated in November, led by a jump in fuel costs and a rebound in truck prices, a separate report from the Labor Department showed today.
The 1.8 percent increase in prices paid to factories, farmers and other producers was more than twice as large as anticipated and followed a 0.3 percent gain in October.
Fed Meeting
Fed policy makers, who begin a two-day meeting today, will keep their benchmark interest rate close to zero to bolster the economic recovery, according to the median of 97 economists in a Bloomberg News survey.
Economists forecast the New York Fed’s index would increase to 24, according to the median of 55 projections in a Bloomberg survey. Estimates ranged from 15.6 to 30. Manufacturers account for 6 percent of New York’s $1.1 trillion economy.
The New York Fed’s gauge of new factory orders dropped to 2.2 from 16.7, while a measure of shipments declined to 6.3 from 13. The inventory index fell to minus 18.4 from minus 17.1, showing a faster pace of drawdown, and a measure of employment declined to minus 5.3, a three-month low, from 1.3 in November.
A gauge of prices paid rose to 19.7 from 10.5, while prices received fell to minus 9.2 from minus 2.6.
Future Expectations
Factory executives in the New York Fed’s district turned less optimistic about the future. The gauge measuring the outlook six months ahead declined to 43 from 57, which was the highest since October 2004.
The Fed is forecast to report later today a 0.5 percent rise in November industrial production, while data on Dec. 17 may show manufacturing in the Philadelphia region expanded for a fifth month in December, according to Bloomberg surveys.
The Institute for Supply Management said on Dec. 8 that manufacturers have a more optimistic outlook for sales in 2010 than their service industry counterparts. Purchasing managers at U.S. factories expect sales will grow 5.7 percent next year, exceeding the 1.3 percent gain projected by services, according to the group’s semiannual forecast.
Inventories, Production
Recent reports suggest companies are more comfortable with their levels of inventories after drawing them down at a record pace in the first nine months of the year. Stockpiles rose in October for the first time in more than a year, suggesting businesses will pick up the pace of orders and boost production as sales rebound.
Even with the rise in sales during the month, companies had enough goods on hand to last 1.3 months, the fewest since August 2008, the Commerce Department’s report on inventories showed Dec. 11.
Unexpected inventory growth and a narrowing in the U.S. trade deficit in October led some economists, including those at JPMorgan Chase & Co., to raise their fourth-quarter growth forecast. The economy grew at a 2.8 percent annual rate in the third quarter, the first period of growth in more than year.
Corning Inc., the world’s biggest maker of glass for liquid-crystal displays, last week increased its fourth-quarter glass volume forecast and said the 2010 market could be larger than previously estimated. Demand for the quarter will be flat to slightly up, the Corning, New York-based company said in a statement. Previously, it had expected sales volume to be flat to slightly down.
“Demand is still exceeding our ability to supply,” Corning Chief Financial Officer James Flaws said during a presentation at the Barclays Capital Global Technology Conference in San Francisco. |
