By Courtney Schlisserman
July 1 (Bloomberg) -- Manufacturing in the U.S. probably contracted in June for a fifth straight month as raw-material costs surged and companies prepared for a slowdown in spending, economists said ahead of a report today.
The Institute for Supply Management's factory index fell to 48.5 from 49.6 in May, according to the median forecast of 77 economists surveyed by Bloomberg News. A reading of 50 is the dividing line between expansion and contraction.
A 42 percent jump in the cost of crude goods in the 12 months to May has prompted companies to cut back on purchases of new equipment, causing output to slow. Growing demand from overseas has helped stave off a deeper factory contraction as the biggest housing slump in a quarter century, stricter credit and record gasoline prices threaten consumer spending.
``Manufacturing is deteriorating,'' said Dana Saporta, an economist at Dresdner Kleinwort in New York. ``The increase in exports appears to not be countering the slowdown in domestic demand.''
The Tempe, Arizona-based institute is scheduled to release the report at 10 a.m. Washington time. Survey forecasts ranged from 46.6 to 50.5.
Another report due at the same time is projected to show construction spending fell 0.6 percent in May, according to the survey median. It would be the seventh decline in eight months.
Gains in Spending
The $78.3 billion in tax-rebate checks sent by the government through June 27 has given Americans the means to overcome the jump in fuel costs for now. Consumer spending, which accounts for more than two-thirds of the economy, rose 0.8 percent in May, the most since November, the Commerce Department said on June 27.
While spending has held up so far, the outlook has dimmed as gasoline prices soar and confidence plummets. Sales of expensive items, like automobiles, have been hardest hit as Americans try to stretch their paychecks.
Auto-industry figures, also due today, are forecast to show purchases of cars and light trucks fell to a 14 million annual rate in June, the fewest since April 1995, according to the median estimate.
General Motors Corp. announced plans on June 23 to reduce North American truck production by 170,000 vehicles after U.S. sales fell. The company is heading toward its ninth straight annual U.S. sales decline and has had three consecutive yearly losses.
Concern Ahead
The rebate-induced boost to spending will be short-lived, according to economists such as RBS Greenwich Capital's Stephen Stanley. After almost all of the tax rebates are sent out by mid July, consumers will still be confronting job losses and higher food and energy costs.
The U.S. has lost 324,000 jobs in the first five months of 2008. Economists anticipate a Labor Department report on July 3 will show payrolls dropped again last month.
Manufacturers also are being hurt by rising prices. Crude oil rose to a record of more than $143 a barrel yesterday, completing the biggest quarterly increase in nine years. Prices have climbed 47 percent this year.
The purchasers' index of prices paid for raw materials probably held at 87 last month, matching May's reading as the highest in four years.
Gains in exports have helped offset slower U.S. spending and rising costs. A weaker dollar has made American-made goods cheaper and more attractive for foreign buyers.
Asian Demand
General Electric Co., the world's biggest maker of locomotives and power-plant turbines, said last month that sales of such equipment may rise 15 percent to 20 percent this year as Asia's emerging nations increase investment in infrastructure.
Demand ``will be significant for decades,'' Vice Chairman John Rice, who runs the GE Infrastructure unit, told reporters on June 23 outside Kuala Lumpur, the Malaysian capital. Growth in Asia will be at the top end of that forecast, he said.
GE Infrastructure, the largest of six main businesses at the Fairfield, Connecticut-based company, expects overseas sales to account for 60 percent of total revenue this year, a 5 percentage-point increase from 2007.
``The one bright spot for manufacturers has been exports, and we see that subcomponent of the index remaining strong,'' Lehman Brothers Holdings Inc. economists Michael Hanson, Michelle Meyer and Zach Pandl said in a note to clients about the purchasers' gauge.
Bloomberg Survey
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ISM ISMConstruct
Manu Prices Spending
Index Index MOM%
================================================================
Date of Release 07/01 07/01 07/01
Observation Period June June May
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Median 48.5 87.0 -0.6%
Average 48.5 87.1 -0.6%
High Forecast 50.5 89.0 0.7%
Low Forecast 46.6 85.0 -1.5%
Number of Participants 77 13 54
Previous 49.6 87.0 -0.4%
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4CAST Ltd. 48.6 --- -0.6%
Action Economics 49.0 88.0 -0.8%
AIG Investments 50.0 --- -0.2%
Aletti Gestielle SGR 49.2 87.0 ---
Allianz Dresdner Economic 47.5 --- ---
Argus Research Corp. 50.5 --- 0.2%
Banc of America Securities 48.5 --- -0.6%
Bank of Tokyo- Mitsubishi 48.0 --- -0.4%
Bantleon Bank AG 48.0 --- ---
Barclays Capital 49.0 --- -0.5%
BBVA 49.0 --- -0.6%
BMO Capital Markets 48.0 88.0 -1.0%
BNP Paribas 48.6 --- -0.8%
Briefing.com 49.6 --- -0.5%
Calyon 48.8 --- ---
CFC Group 48.8 88.0 -0.6%
CIBC World Markets 49.0 --- -0.6%
Citi 47.5 88.0 -0.4%
ClearView Economics 48.5 --- -0.7%
Commerzbank AG 49.0 --- ---
Credit Suisse 48.0 86.0 -0.4%
Daiwa Securities America 48.0 88.0 -0.5%
Danske Bank 48.0 --- ---
DekaBank 48.5 --- -0.6%
Desjardins Group 48.8 --- -0.7%
Deutsche Bank Securities 49.0 --- -0.2%
Deutsche Postbank AG 49.0 --- ---
Dresdner Kleinwort 48.5 87.0 ---
DZ Bank 49.2 --- ---
First Trust Advisors 49.7 --- -1.0%
Fortis 49.5 --- ---
FTN Financial 48.5 --- ---
Global Insight Inc. 48.0 --- -0.2%
Goldman, Sachs & Co. 48.0 --- -0.6%
H&R Block Financial Advis 48.5 85.0 -0.6%
Helaba 47.8 --- -0.4%
High Frequency Economics 48.0 --- -1.5%
Horizon Investments 49.0 --- -0.2%
HSBC Markets 47.0 --- -0.1%
IDEAglobal 48.5 85.0 -0.8%
Informa Global Markets 48.0 --- -0.8%
ING Financial Markets 48.8 --- -0.7%
Insight Economics 48.5 --- 0.7%
J.P. Morgan Chase 48.5 --- -0.7%
Janney Montgomery Scott L 46.9 --- -0.8%
JPMorgan Private Client 49.0 --- -0.4%
Landesbank Berlin 47.5 --- -1.0%
Landesbank BW 46.6 --- -0.5%
Lehman Brothers 48.0 --- -0.4%
Lloyds TSB 50.0 --- -0.3%
Maria Fiorini Ramirez Inc 49.0 --- ---
Merk Investments 48.0 86.0 -0.6%
Merrill Lynch 48.7 --- -1.0%
Moody's Economy.com 48.0 --- -0.8%
Morgan Stanley & Co. 48.0 --- -1.4%
National Bank Financial 49.5 --- ---
National City Corporation 49.1 --- -0.5%
Natixis 48.6 --- ---
Newedge 48.9 --- ---
PNC Bank 49.0 --- -0.4%
RBS Greenwich Capital 49.0 --- ---
Ried, Thunberg & Co. 48.5 --- ---
Schneider Trading Associa 47.4 89.0 ---
Scotia Capital 48.5 --- -0.4%
Societe Generale 48.0 --- ---
Stone & McCarthy Research 48.0 --- -0.7%
TD Securities 48.0 --- ---
Thomson Financial/IFR 48.9 --- -0.5%
Tullett Prebon 49.0 --- ---
UBS Securities LLC 47.5 --- -1.0%
Unicredit MIB 48.0 --- -0.4%
University of Maryland 49.5 87.0 -0.6%
Wachovia Corp. 48.6 --- -0.2%
Wells Fargo & Co. 49.0 --- ---
WestLB AG 49.0 --- -0.5%
Westpac Banking Co. 49.0 --- -0.8%
Wrightson Associates 48.5 --- ---
================================================================
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net.
Last Updated: July 1, 2008 00:01 EDT
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