Ahead of the Bell: ISM manufacturing index

AP News
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Posted: Dec 01, 2009 6:11 AM

U.S. manufacturing activity likely continued to grow in November as demand from overseas ramps up and customers restock bare shelves, although some fear rising joblessness could deflate recoveries in the industrial sector and broader economy.

Analysts polled by Thomson Reuters expect the index from the Institute for Supply Management, a trade group of purchasing executives, will read 55 in November, compared with 55.7 in October _ which was the best showing since April 2006. A reading above 50 indicates growth.

ISM's manufacturing index, which is due out Tuesday at 10 a.m. EST, first showed growth in August after 18 months of contraction.

In October, the employment component grew for the first time in 15 months. But a measure tracking new orders, a signal of future production, slipped to 58.5 from 60.8 in September.

There are concerns about the sustainability of the manufacturing sector's domestic recovery. Some economists worry that once customers rebuild inventories depleted during the recession, demand for manufacturers' goods could again taper off.

Another worry is that as government stimulus programs wind down, consumers will clamp down on spending amid rising unemployment. The jobless rate hit 10.2 percent in October, a 26-year high.

Congress last month extended until April and expanded one of the most well-known stimulus programs, the homebuyers' tax credit. Industry groups credited the credit, which was set to expire in November, with helping the housing recovery.

Meanwhile, demand from developing countries continues to offset some of American consumers' frugality. U.S. exports are growing as the dollar drops, making them cheaper for foreigners compared with goods from other countries. The government said exports grew in September for the fifth straight month.

Farm equipment maker Deere & Co., for example, expects a tough year in 2010, with sales of large farm equipment dropping more than 10 percent _ but it sees South American agricultural sales growing up to 15 percent.

Pittsburgh-based H.J. Heinz Co. said rising sales of nutritional beverages in India, as well as higher sales of ketchup and baby food in Latin America and Russia, helped boost sales 2 percent in its second quarter.

Big technology companies, such as Hewlett-Packard Co., Intel Corp. and Microsoft Corp., also said conditions are improving in some of their businesses as U.S. and Chinese consumers show stronger demand.

Still, U.S. manufacturing layoffs continue. Last week, Spanish wind turbine maker Gamesa said it would cut 141 people from a western Pennsylvania plant this year, blaming the economic downturn for delays in wind farm projects.