Manufacturing Jumps in Sign of Rebound

U.S. Economy: Manufacturing Jumps in Sign of Rebound (Update1)

By Shobhana Chandra

April 1 (Bloomberg) -- Manufacturing grew in March at thefastest pace in more than five years, raising the odds the U.S.has embarked on a prolonged economic expansion.

The Institute for Supply Management’s factory index rose to59.6, the highest level since July 2004 and exceeding the mostoptimistic forecast in a Bloomberg News survey of 77 economists.Readings greater 50 signal growth.

“Manufacturing is on a tear,” said Chris Rupkey, chieffinancial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in NewYork, whose forecast was the highest in the survey. It’s“turning this recovery into a more sustainable one. Asproduction increases, it means job gains are going to spread.”

Stocks rallied worldwide and commodity prices jumped asother reports showed factories from China to Europe weresimultaneously rebounding from the worst global recession in thepost-World War II era. A combination of rising sales anddepleted inventories ensure production will keep rising, givinga boost to companies from Honeywell International Inc. to BoeingCo.

Economists projected the factory index would rise to 57from 56.5 in February, based on the median forecast in theBloomberg survey. Estimates ranged from 54 to 59.

The Tempe, Arizona-based group’s export gauge rose to thehighest level since 1989, inventories grew and orders andproduction accelerated.

‘Strong’ Momentum

“The degree of momentum going into the second quarter isvery strong,” Norbert Ore, chairman of the group’s factorysurvey, said in a telephone interview. “2010 will be a year ofcontinuing recovery. We have the benefit of a global recovery.”

In China, manufacturing expanded for a 13th month, whileEuropean factories grew at the fastest pace since November 2006,figures released today showed.

The Standard & Poor’s 500 Index rose 0.7 percent to 1,178.1at 4:04 p.m. in New York. Copper, platinum and oil pricesclimbed to at least 17-month highs.

Fewer Americans filed claims for jobless benefits lastweek, the Labor Department also reported. Applications forunemployment insurance payments dropped by 6,000 to 439,000 inthe week ended March 27. The average number of claims during thepast four weeks fell to the lowest level since September 2008.

“We are turning a corner in the labor market,” said JuliaCoronado, a senior U.S. economist at BNP Paribas in New York,who had forecast a decline in the weekly jobless claims.“Businesses are gradually starting to have more confidence inthe recovery.”

Creating Jobs

Economists anticipate a Labor Department report tomorrowwill show the economy created about 180,000 jobs in March, themost in three years, according to a survey median. Payrollsdeclined by 36,000 in February.

Manufacturing jobs increased 14,000 in March, the thirdstraight gain, according to the survey median, and the joblessrate is projected to hold at 9.7 percent for a third consecutivemonth. The unemployment rate has not increased since reaching a26-year high of 10.1 percent in October.

Honeywell, the Morris Township, New Jersey-based maker ofcontrols for planes and buildings, this week raised its first-quarter profit forecast on stronger orders and cost controls.

“We continue to see signs of recovery throughout ourportfolio and are encouraged by improving customer ordertrends,” Chief Executive Officer David Cote said in a March 30statement.

Aircraft Sales

Chicago-based Boeing, the world’s second-biggestcommercial-plane maker, said it’ll boost production of itslargest jets in coming years to meet stronger demand as airlinesrebound from the recession-induced travel slump.

Efforts to stabilize inventories provided the biggest boostto growth in the final three months of 2009, when the economyexpanded at a 5.6 percent annual rate, the fastest in six years.

Not all the news today was good. Construction spending fell1.3 percent in February to the lowest level in more than sevenyears, signaling this part of the economy remains in arecession, figures from the Commerce Department showed. Thedecrease followed a revised 1.4 percent drop in January that wasmore than twice as large as previously estimated.

“Some areas of the economy are doing a lot better thanothers,” said Sal Guatieri, a senior economist at BMO CapitalMarkets in Toronto. “The commercial real-estate sector islagging the recovery and we know the housing market is stillmoribund.”