Manufacturing in New York Area Shrank at Slower Pace

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By Bob Willis

July 15 (Bloomberg) -- Manufacturing in the New York region shrank this month at the slowest pace in more than a year as orders climbed by the most since the recession began.

The Federal Reserve Bank of New York’s July general economic index climbed to minus 0.6, the highest level since April 2008, from minus 9.4 the prior month, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is contracting.

The factory slump may ease after inventory cuts set the stage for increases in production as sales here and abroad rebound. Even so, companies such as General Motors Co. and Chrysler Group LLC will be slow to recover as unemployment and falling home values prompt consumers to boost savings.

“Manufacturing continues to show a less bad profile,” Robert Dye, a senior economist at PNC Financial Services Group in Pittsburgh, said before the report. “Conditions are improving and we’re getting close to a point where manufacturing no longer prevents a recovery in the economy.”

Economists projected the Empire State index would improve to minus 5, according to the median of 53 estimates in a Bloomberg News survey. Forecasts ranged from 2 to minus 10.

Today’s report is one of the earliest measures of regional manufacturing this month. Manufacturing accounts for 6 percent of New York’s $1.1 trillion economy.

Philadelphia Area

A report from the Philadelphia Fed, due tomorrow, may show manufacturing in that region contracted at a faster pace in July, according to the Bloomberg survey median.

Figures from the Labor Department today showed the cost of living rose more than forecast in June, led by a jump in energy costs. The consumer price index gained 0.7 percent, the biggest increase since July 2008, after rising 0.1 percent in May. Excluding food and energy costs, the so-called core index rose 0.2 percent.

Treasury securities dropped and stock index futures extended gains after the reports. The yield on the benchmark 10- year note climbed to 3.51 percent at 8:35 a.m. in New York from 3.47 percent late yesterday. The contract on the Standard & Poor’s 500 index was up 1.3 percent at 912.7.

The New York Fed’s measure of new orders increased to 5.9, the highest reading since the recession began in December 2007, from minus 8.2. A gauge of shipments rose to 11, the highest level in a year, from minus 4.8. The index of inventories dropped to minus 36.5 from minus 25.3, signaling stockpiles are being cut at a faster pace.

Higher Prices

The index of prices paid jumped to 10.4 from minus 5.8 and the gauge of prices received improved to minus 8.3 from minus 12.6. A measure of employment improved to minus 20.8 from minus 21.8.

Still, factory executives in the New York Fed’s district, which encompasses New York state, northern New Jersey and one county in Connecticut, turned less optimistic about the future. The gauge measuring the manufacturing outlook fell to 34 from 47.8.

Regional and national purchasing manager surveys have shown a declining rate of contraction in recent months, one sign the worst of the manufacturing slump may have passed. The Institute for Supply Management’s factory index climbed to 44.8 in June, its highest reading since August. The gauge reached a 28-year- low in December.

Second-Half Rebound

Economists surveyed by Bloomberg News July 2 to July 8 projected the U.S. economy will grow at an average 1.5 percent pace in the second half of the year after falling at an estimated 1.8 percent pace in the second quarter. They also projected the jobless rate will surpass 10 percent by early 2010.

New York-based Alcoa Inc., the largest U.S. aluminum producer, is among companies seeing signs of improvement. It’s counting on government economic-stimulus spending in China and the U.S. to boost metal demand enough to help the company start generating cash again.

China’s measures have spurred infrastructure projects and boosted consumer spending, pushing domestic aluminum demand beyond supply for the first time since the global recession forced metal producers to curtail output, Chief Executive Officer Klaus Kleinfeld said July 8.

“One of the things that the Chinese government very smartly does these days is that they are stimulating people” to forego saving and to “buy new cars and get a new air-conditioner,” Kleinfeld said on a call with analysts.

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