By Courtney Schlisserman
July 1 (Bloomberg) -- Manufacturing in the U.S. probably shrank in June at the slowest pace in 10 months, another sign the worst of the recession may be over, economists said before a private report today.
The Institute for Supply Management’s factory index rose to 44.6, the highest level since August, according to the median forecast of 73 economists surveyed by Bloomberg News. Readings lower than 50 signal contraction.
Stabilization in consumer spending, the biggest part of the economy, may prompt factories to boost production in coming months. After trimming stockpiles at the fastest pace on record in the first quarter, companies continued to cut back in the last three months, meaning any pickup in demand will spark a recovery in manufacturing.
“Things are getting less bad,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “We’re probably getting close to the inflection point in the economy soon, some time in the third quarter probably.”
The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Forecasts ranged from 47.5 to 40 after a reading of 42.8 in May.
Manufacturing accounts for about 12 percent of the world’s largest economy.
Other reports today may show companies cut fewer jobs in June, pending home resales steadied in May after three consecutive gains and spending on construction projects dropped in May for the first time in three months.
Regional Measures
Regional measures have indicated the manufacturing slump is easing. The Federal Reserve Bank of Philadelphia’s general economic index climbed to minus 2.2, the highest reading in nine months. The Institute for Supply Management-Chicago Inc.’s business barometer for June increased to 39.9, from 34.9.
“The pace of economic contraction is slowing,” the Fed said last week. Fed policy makers voted June 24 to hold the benchmark overnight lending rate between banks at an historic low of zero percent to 0.25 percent.
Stocks had their biggest quarterly increase since 1998 from April through June on growing evidence the worst economic slump in a half century was easing. The Standard & Poor’s 500 index gained 15 percent in the quarter ended yesterday, breaking a streak of six consecutive declines.
Bankruptcies at General Motors Corp. and Chrysler LLC have rippled through the auto industry and caused some suppliers to also file for protection from creditors.
“The next three months are going to be critical,” Tony Brown, purchasing chief for Ford Motor Co., said June 24 in an interview. “The Chapter 11 filings have increased the cash-flow pressure on the supply base.”
‘Cash for Clunkers’
Even so, government efforts to revive auto sales may give manufacturing and the economy a boost in the third quarter. The “cash for clunkers” bill that passed Congress in June gives consumers as much as $4,500 to trade in their old cars for more fuel-efficient vehicles.
An increase in auto sales will come as automakers slashed inventories to get rid of unwanted stocks, meaning manufacturers will need to crank up production again to meet the new demand, according to Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.
Maki last week boosted his forecast for economic growth in the second half of 2009 by a half percentage point to 3 percent.
Other companies are already seeing an improvement.
The period of crisis management at General Electric Co. is “behind us” and some level of economic growth will take place next year, Chief Executive Officer Jeffrey Immelt said earlier this week.
“In some way, shape or form, 2010 and beyond will see economic growth,” Immelt said at the London School of Business on June 29. “How positive it is remains to be seen.”
Bloomberg Survey
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ADP Construct ISM Pending
Payroll Spending Manu Homes
,000’s MOM% Index MOM%
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Date of Release 07/01 07/01 07/01 07/01
Observation Period June May June May
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Median -395 -0.6% 44.6 0.0%
Average -388 -0.6% 44.6 0.5%
High Forecast -280 0.8% 47.5 7.0%
Low Forecast -532 -1.9% 40.0 -3.0%
Number of Participants 29 53 73 36
Previous -532 0.8% 42.8 6.7%
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4CAST Ltd. -320 -1.0% 45.5 -3.0%
Action Economics -350 -1.0% 44.0 -1.4%
AIG Investments --- -1.7% 44.5 -0.5%
Aletti Gestielle SGR --- --- 44.0 ---
Ameriprise Financial Inc -450 -0.5% 44.0 -0.5%
Argus Research Corp. --- 0.2% 46.0 ---
Banesto -415 -0.7% 44.0 1.6%
Bank of Tokyo- Mitsubishi --- -1.5% 46.0 ---
Bantleon Bank AG --- --- 45.0 ---
Barclays Capital --- -1.2% 46.0 -1.0%
BBVA -372 0.0% 43.6 1.1%
BMO Capital Markets -320 -1.0% 44.0 -2.0%
BNP Paribas -280 -0.3% 43.0 ---
Briefing.com -400 -0.8% 44.0 0.0%
C I T I C Securities -350 --- 45.0 ---
Calyon --- --- 44.5 ---
Capital Economics --- 0.0% 45.0 2.0%
CIBC World Markets --- -1.0% 41.0 ---
Citi --- -0.4% 45.0 ---
ClearView Economics --- 0.0% 44.0 7.0%
Commerzbank AG --- --- 46.0 ---
Credit Suisse --- -0.5% 46.0 ---
Daiwa Securities America --- -0.5% 42.0 ---
Danske Bank --- --- 46.5 ---
DekaBank --- -0.1% 44.5 -1.0%
Desjardins Group --- -0.8% 43.3 ---
Deutsche Bank Securities --- 0.4% 44.0 3.0%
Deutsche Postbank AG --- --- 44.5 ---
DZ Bank -390 --- 45.0 2.0%
Exane --- -1.0% 45.0 -1.0%
First Trust Advisors --- -0.3% 45.2 ---
Fortis --- --- 45.0 0.0%
Goldman, Sachs & Co. --- 0.0% 46.0 ---
Herrmann Forecasting -395 -1.0% 44.6 ---
High Frequency Economics -400 -1.0% 45.0 0.0%
Horizon Investments --- -0.1% 45.0 -0.5%
HSBC Markets -370 0.0% 47.5 1.0%
IDEAglobal -345 -0.8% 45.0 -0.9%
IHS Global Insight --- -1.0% 46.5 ---
Informa Global Markets -400 -0.2% 44.0 0.5%
ING Financial Markets -350 -0.6% 44.0 0.5%
Insight Economics --- -0.8% 45.0 1.0%
Intesa-SanPaulo --- -0.5% 45.0 ---
J.P. Morgan Chase --- -1.2% 47.0 -2.0%
Johnson Illington Advisor --- --- 44.0 ---
Landesbank BW --- 0.0% 43.5 ---
Maria Fiorini Ramirez Inc -532 0.8% 44.0 6.7%
Merrill Lynch -500 -1.0% 40.0 ---
MFC Global Investment Man -400 -1.0% 45.0 ---
Moody’s Economy.com -430 -0.6% 46.8 -1.5%
Morgan Keegan & Co. --- -0.7% --- ---
Morgan Stanley & Co. --- -1.9% 43.5 ---
National Bank Financial --- --- 45.0 ---
Natixis -315 --- 45.0 ---
Nomura Securities Intl. -375 --- 43.5 ---
PNC Bank --- -1.0% 45.0 ---
RBS Securities Inc. --- --- 45.0 ---
Schneider Foreign Exchang -330 --- 47.0 1.5%
Scotia Capital -400 --- 46.0 2.0%
Societe Generale --- --- 46.5 ---
Standard Chartered -393 --- 44.5 2.1%
Stone & McCarthy Research --- 0.1% 42.3 ---
TD Securities -400 --- 46.0 1.0%
Thomson Reuters/IFR --- 0.0% 45.0 ---
Tullett Prebon --- --- 43.5 ---
UBS Securities LLC --- -0.5% 45.0 1.0%
Unicredit MIB --- --- 44.0 ---
University of Maryland -400 -0.8% 43.9 -1.4%
Wachovia Corp. --- -0.5% 43.5 ---
Wells Fargo & Co. --- -1.0% 44.0 -1.4%
WestLB AG -420 0.1% 44.0 1.2%
Westpac Banking Co. --- 0.5% 44.5 ---
Woodley Park Research --- -1.5% 44.3 -0.6%
Wrightson Associates -450 0.0% 44.0 0.0%
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To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net.
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