By Courtney Schlisserman
Aug. 31 (Bloomberg) -- Business activity in the U.S. rose more than forecast in August, adding to signs the economy is improving.
The Institute for Supply Management-Chicago Inc. said today its business barometer increased to 50, the highest level since September, from 43.4 in July. A reading of 50 is the dividing line between contraction and expansion.
Automakers are likely to be at the epicenter of a rebound in manufacturing over coming months as assembly lines speed up after the government’s “cash-for-clunkers” plan left dealer lots bare. Increasing demand from overseas and a record reduction in inventories mean a pickup in factory orders and production may last for much of the rest of the year.
It’s “a manufacturing-led recovery,” said Robert Stein, a senior economist at First Trust Advisors in Lisle, Illinois. “Much of this is probably related to the revival in auto production over the past month or so.”
Economists surveyed by Bloomberg News forecast the index would rise to 48, according to the median of 53 projections. Estimates ranged from 46 to 52.5.
Stocks Retreat
Stocks dropped globally on speculation the six-month rally has outpaced prospects for earnings. The Standard & Poor’s 500 index fell 0.8 percent to close at 1,020.62. Treasury securities rose, pushing the yield on the 10-year Treasury down to 3.41 percent at 4:12 p.m. in New York, compared with 3.45 percent at the end of last week.
Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy. The Institute for Supply Management is scheduled to release its August factory report tomorrow. According to a Bloomberg survey, that measure will show expansion for the first time since January 2008.
Other reports this month also showed manufacturing improving. The Federal Reserve Bank of Philadelphia’s economic index expanded this month for the first time since September, and the New York Fed’s barometer gained for the first time since April 2008.
The Chicago report’s orders gauge climbed to 52.5, the highest level in a year, from 48 in July and the production index rose to 52.9 from 43.3.
The employment index increased to 38.7 from 35.3. A measure of prices paid for raw materials jumped to 50 from 35, while a gauge of delivery times increased to 54.6 from 49.6.
Factories at General Motors Co. and Chrysler Group LLC are resuming production after exiting bankruptcy proceedings. Also, plants have boosted output to meet demand from the government’s “cash-for-clunkers” trade-in program, which ended Aug. 24.
‘Clunkers’
The plan offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel- efficient vehicles. The program produced almost 700,000 auto sales before it ended, the Transportation Department said Aug. 26.
Whirlpool Corp. is among manufacturers continuing to cut payrolls. The world’s largest appliance maker said Aug. 28 it will close its Evansville, Indiana, plant, resulting in the elimination of 1,100 jobs. The job cuts will occur next year and some of the production from the facility will be moved to an existing factory in Mexico.
Smaller inventories will contribute to a rebound in output as orders rise to restock shelves. Inventories dropped at a record $159.2 billion annual rate in the second quarter, the Commerce Department said last week. They dropped at a $113.9 billion in the first three months of the year.
Some companies are not optimistic of a fast turnaround. Chicago-based Boeing Co. executives said Aug. 27 they wouldn’t be able to give a forecast for 2010 until January.
“I fully expect the pressures of the current economic climate to remain with us for some time to come,” Chief Executive Officer Jim McNerney said in an employee newsletter, adding that he wasn’t seeing many signs of a quick recovery. “That’s going to mean another tight year for us in 2010.”
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net.
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