Manufacturing in U.S. Expands at Faster Pace Than Forecast

Manufacturing grew in October at a faster pace than forecast, showing U.S. factories were a source of strength for the economy at the start of the fourth quarter.

The Institute for Supply Management's index climbed to 56.4, the highest since April 2011, from 56.2 a month earlier, the Tempe, Arizona-based group's report showed today. Readings above 50 indicate growth. The median forecast in a Bloomberg survey of economists was 55.

Resilient motor vehicle sales and the recovery in housing are helping sustain production at the same time global markets begin to pick up. Today's figures show the brinksmanship over the budget that closed the federal government for 16 days last month did little to spoil the rebound in manufacturing since the middle of the year.

'The government closure didn't have much effect on manufacturing -- this is a modest pace of growth and fairly well-sustained,' said Terry Sheehan, an economic analyst at Stone & McCarthy Research Associates in Princeton, New Jersey, who projected a reading of 56.4. 'We actually see some increase in the export orders, so it's possible that some of the slowness in the global economy is beginning to ease.'

Stocks maintained gains after the figures. The Standard & Poor's 500 Index advanced 0.2 percent to 1,760.56 at 10:46 a.m. in New York.

Estimates for the factory index from 83 economists in the Bloomberg survey ranged from 52.5 to 57.5. Manufacturing accounts for about 12 percent of the economy. Of the 18 industries covered, 14 reported expansion in October, led by textile mills, the ISM said.

Government Shutdown

While the gauge showed little effect on manufacturing from the partial shutdown of federal agencies last month, reduced government spending prompted economists to cut their fourth-quarter growth forecasts, according to a survey yesterday.

The world's largest economy will expand at a 2 percent annualized rate in the final three months of 2013, less than the 2.4 percent pace projected in an Oct. 4-9 survey of economists.

From China to South Korea, manufacturing strengthened last month in a sign that growth risks are abating in Asia and expansion may pick up this quarter.

China's official factory index of purchasing managers rose to an 18-month high and a measure from HSBC Holdings Plc and Markit Economics topped projections. HSBC's reading for South Korea showed growth for the first time since May and Taiwan's PMI rose to 53 from 52. An Australian index also advanced.

U.K. Manufacturing

In the U.K., manufacturing eased in October from a month earlier. A measure for Norway showed a pickup in growth, while Switzerland, Sweden and Denmark showed slower expansions.

The ISM's gauge of U.S. new orders was little changed at 60.6 last month after 60.5 in September. The measure has exceeded 60 for three straight months, the longest since the start of 2011.

Supplier delivery times lengthened, according to an ISM measure that climbed to the highest level since June 2011.

An index of production cooled to 60.8 from 62.6. The group's factory employment measure dropped in October to 53.2 from 55.4, while the index of orders waiting to be filled climbed to 51.5 from 49.5.

The report also showed gauges of factory inventories and customer stockpiles rose in October from the prior month.

Vehicle Sales

Motor vehicle demand has kept assembly lines busy at the nation's automakers. Cars and light trucks sold at a 15.2 million annualized pace in September after a 16 million rate the previous month that was the fastest since November 2007, according to Ward's Automotive Group.

Ford Motor Co. (F), the second-largest U.S. automaker, achieved a record third-quarter pre-tax profit of $2.6 billion, lifting its full-year outlook, according to an Oct. 24 company statement.

Ford's vehicle deliveries, revenue and market share increased in all four of its regions during the third quarter. Operations outside North America earned about $57 million, the company's best result on that basis since the second quarter of 2011.

Even with last month's budget battle in Washington, some companies such as Kennametal Inc. (KMT), which produces tools and tooling systems, see signs of sustained growth in the global economy.

'Strong' Foundation

'In the U.S., there have been various concerns about the economy as well as the fiscal budget issues and tax increases as well as the federal spending sequester,' Carlos Cardoso, chairman and chief executive officer at Latrobe, Pennsylvania-based Kennametal, said on an Oct. 24 earnings call. 'Business conditions continue to be tentative' even as 'the foundation of a recovery remains strong.'

At the same time, the medical device industry is one sector that's struggling with limited demand. Boston Scientific Corp. (BSX), the second-biggest maker of heart-rhythm aids, plans to cut as many as 1,500 employees through 2015, the Natick, Massachusetts-based company said in an Oct. 24 statement.

The cutbacks build on a 2011 program, which was expanded in January, and are in line with efforts by competitors including industry leader Medtronic Inc. (MDT) of Minneapolis, which announced cuts of as many as 2,000 jobs in 2011.

Insufficient demand has convinced the Federal Reserve to press on with $85 billion in monthly bond purchases, according to a statement earlier this week at the conclusion of a two-day meeting in Washington.

'The recovery in the housing sector slowed somewhat in recent months,' the Federal Open Market Committee said in the statement. 'Fiscal policy is restraining economic growth.'

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

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

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