US manufacturing rebound stokes hopes

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US manufacturing rebound stokes hopes

US manufacturing shrank less than forecast, and construction spending unexpectedly rose, as overseas demand and the Obama administration's stimulus helps resuscitate US factories from their worst slump in 28 years.

The Institute for Supply Management's factory gauge rose to an 11-month high of 48.9 in July, according to the Tempe, Arizona-based group. Readings below 50 signal contraction; the gauge has risen every month since hitting a low of 32.9 in December. The Commerce Department reported that construction gained 0.3 per cent in June, helped by government spending.

The factory slump is abating as leaner inventories, smaller cutbacks in business investment and an end to the slump in homebuilding indicate the worst recession since the Great Depression is ending. The federal ``cash-for-clunkers'' program also is boosting demand for cars, analysts said.

``The wheels of the economic train have stopped moving in reverse and are starting to grind forward,'' said Brian Bethune, an IHS Global Insight economist in Lexington, Massachusetts. ``We're starting to see a pickup in production, partly due to the turn in residential construction'' and also in the automobile industry, he said.

Economists forecast the ISM gauge would rise to 46.5, from 44.8 in June, according to the median of 77 forecasts in a Bloomberg News survey. Estimates ranged from 44.1 to 49.

The ISM's production index rose to 57.9, the highest level since June 2007, from 52.5. A gauge of export orders increased to 50.5, indicating the first expansion since September, from 49.5 in June.

The reading for new orders rose to 55.3, the highest since July 2007, from 49.2 a month earlier. The inventory index rose to 33.5 from 30.8, which was the lowest level since 1982. A figure below 50 means manufacturers are reducing stockpiles.

The employment index rose to 45.6 from 40.7.

The index of prices paid increased to 55 from the breakeven point of 50 in June. Economists had projected that the measure, which averaged 66.5 last year, would rise to 52.

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The supplier delivery gauge, a measure of the time it takes to receive goods, rose to 52 from 50.6. The measure of orders waiting to be filled rose to 50 from 47.5.

Reports today also show manufacturing improving elsewhere.

The CLSA China Purchasing Managers' Index rose to a seasonally adjusted 52.8, the highest level in a year, from 51.8 in June, CLSA Asia-Pacific Markets said today in an e-mailed statement. An official index, released Aug. 1, also expanded.

U.K. manufacturing expanded in July for the first time in more than a year. A gauge based on a survey of factories climbed to 50.8 from a revised 47.4 in June, the Chartered Institute of Purchasing and Supply and Markit said today in London. Markit also said its index of euro-area manufacturing activity rose for a fifth month in July.

In the US, the Institute for Supply Management-Chicago Inc. said July 31 that its business barometer increased to 43.4 in July, the highest level in 10 months.

Stocks gained in the past two weeks as reports pointed to an economy on the mend and companies such as Motorola Inc., Caterpillar Inc. and Dow Chemical Co. reported better-than- estimated earnings. The Standard & Poor's 500 Index ended last week at 987.47, up 5 per cent from July 17 and 46 per cent from a 12-year low reached on March 9.

The emergence from bankruptcy of General Motors Co. and Chrysler Group LLC may alleviate some of the pressure on automotive suppliers, and government efforts to revive auto sales will give factories a further boost in coming months.

The ``cash-for-clunkers'' trade-in program begun this month has spurred sales. The House of Representatives on July 31 approved an emergency measure to add $US2 billion to the automobile purchase program after a burst of demand exhausted most of the initial $US1 billion in less than a week.

Lawmakers had expected the program to generate about 250,000 vehicle sales and to have enough money to last to about Nov. 1. The Senate may act on the bill this week, said Jim Manley, a spokesman for Majority Leader Harry Reid.

The economy shrank at a 1 per cent annual pace in the second quarter, less than forecast, figures from the Commerce Department July 31 showed, helped by a jump in government spending that masked a deeper retrenchment by consumers.

Consumer spending, which accounts for about 70 per cent of the economy, fell at a 1.2 per cent pace following a 0.6 per cent increase in the prior quarter. Purchases slid 2 per cent since the peak at their end of 2007 -- the most since the 1980 recession.

Meanwhile, companies slashed inventories at a record $US141.1 billion annual pace in the quarter after a $US113.9 billion decline in the previous three months, setting the stage for renewed production.

Rockwell Collins Inc., an aircraft-parts producer based in Cedar Rapids, Iowa, last week maintained its forecast for the year and said a drop in business-jet sales appears to be nearing a bottom.

``We're starting to see some stabilization and a relative decrease in the flow of bad news,'' Chief Executive Officer Clay Jones said on a conference call July 30, repeating his April forecast for fiscal 2009 profit of $US3.70 to $US3.90 a share.

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Dow Chemical, the largest US chemical maker, last week posted second-quarter profit that topped analysts' estimates as demand improved from earlier in the year. Sales volumes rose 5 per cent from the prior period, a sign of economic stability, Chief Executive Officer Andrew Liveris said.

``The United States economy has found bottom but will be slow in recovering as unemployment continues to be a drag on consumer spending,'' he said.

Bloomberg News

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