Manufacturing unexpectedly expanded in April at the fastest pace in 10 months, driven by gains in orders and production that signal the US remains a source of strength for the global economy.

The Institute for Supply Management’s factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg News survey, from 53.4 in March, the Tempe, Arizona-based group’s report showed on Tuesday. Readings greater than 50 signal growth. The median forecast in the Bloomberg survey called for a drop to 53. Measures of production and orders were the highest in a year.

Stronger demand for automobiles is bolstering American manufacturing at a time when factories in other parts of the world are paring production as growth cools. At the same time, the industry faces headwinds from smaller gains in business investment, less contribution from inventories and recession in parts of Europe.

“Manufacturing is still in pretty good shape,” said Scott Brown, chief economist at Raymond James & Associates Inc in St Petersburg, Florida, who projected an increase in the factory index. “US manufacturing will outperform its counterparts in Europe. At this point, we’re in a steady-state expansion” in the economy, he said.

Elsewhere, a UK manufacturing index fell more than forecast in April as export orders declined the most since May 2009. The gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, dropped to 50.5, the lowest this year, from a revised 51.9 in March, Markit said on its website on Tuesday. The median forecast in a Bloomberg survey called for a decline to 51.5 from an initial March estimate of 52.1.

Moody’s said on Tuesday hosting the Olympics this year will give Britain’s struggling economy and its companies only a short-term boost, and the construction sector has already enjoyed most of the benefits. The credit ratings agency described the Games as a “huge marketing opportunity for corporates” but echoed the view of many economists that the Olympic effect was likely to prove fleeting.

China’s manufacturing expanded for a fifth month in April, reducing pressure on policy makers to open the taps on credit in the world’s second-largest economy. The Purchasing Managers’ Index rose to 53.3 from 53.1 in March, China’s statistics bureau and logistics federation said on Tuesday.

That’s the highest reading in a year.

In the US, stocks climbed after the figures, with the Standard & Poor’s 500 Index increasing 0.8 per cent to 1,409.7 at 10:37 am in New York.

The yield on the benchmark 10-year Treasury note rose to 1.95 per cent from 1.91 per cent late yesterday. Estimates of the ISM index ranged from 52 to 54. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

The ISM’s production index climbed to 61 in April, the highest since March 2011, from 58.3. The new orders measure increased to 58.2, the strongest since April 2011, from 54.5. Fifteen of the 18 industries reported growth in orders and production in April and none indicated a decline. The gauge of export orders rose to 59 from 54.

The employment gauge climbed to a 10-month high of 57.3 from 56.1 in the prior month. Economists project a 20,000 increase in factory employment in April, according to the Bloomberg survey median before the Labor Department’s May 4 release of its jobs data.

Total payrolls increased by about 160,000 during the month, up from 120,000 in March, the median estimate shows.

The measure of orders waiting to be filled decreased to 49.5 from 52.5. The inventory index dropped to 48.5 to 50, while a gauge of customer stockpiles increased to 45.5 from a three- month low of 44.5. A figure lower than 50 means manufacturers are reducing stockpiles.

Recent regional reports indicate US manufacturing, which accounts for about 12 per cent of the total economy, is expanding less vigorously than last year. New York-area factories grew at the slowest pace in five months in April, and manufacturing in the Philadelphia region expanded at a slower pace last month, according to figures from the Federal Reserve.

Business spending on equipment and software in the first quarter rose at a 1.7 per cent pace, the weakest in almost three years, a Commerce Department report showed last week. Other data last week showed orders for non-defence capital goods excluding aircraft — a proxy for business investment in items such as computers and communications gear — decreased 0.8 per cent in March.

Overseas demand for US made-goods also risks fading as global growth slows. Spain’s economy contracted in the first quarter, putting the euro region’s fourth-largest economy into its second recession since 2009. The UK economy shrank 0.2 per cent in the first quarter after contracting 0.3 per cent in the prior three months as Britain slid into its first double dip recession since the 1970s.

“The global economy is uneven,” John Faraci, chairman and chief executive officer of International Paper Co, said during an April 27 earnings call. “We got a recession going on in Western Europe. The growth has slowed in China and India. And North Americas is a recovering but far from fully recovered economic environment.”

At the same time, stronger auto production bolstered the US economy from January through March, which may keep support manufacturing. Motor vehicle output added 1.12 per centage points to growth, the most since the third quarter of 2009. Cars last quarter sold at the fastest pace in four years, according to industry data.

Manufacturers mentioned gains in automotive and high- technology industries, the Fed said in its Beige Book business survey, published April 11. The firms “expressed optimism about near-term growth prospects, but they are somewhat concerned about rising petroleum prices,” the Fed said in the report.

3M Co, the maker of fuel system tune-up kits and Post-it Notes, posted first-quarter profit that beat analysts’ estimates because of rising US auto and industrial demand. The St. Paul, Minnesota-based company’s industrial and transportation unit posted sales of $2.66 billion, an 8.6 per cent increase.

Source : business-standard.com