Feb. 2 (Bloomberg) -- A gauge of U.S. manufacturing may have risen to a two-decade high in January as factories boost production to replace depleted inventories and meet improving demand, according to a survey of economists ahead of an industry report today. A reading of 64 is expected for the Institute for Supply Management's factory index, the highest since December 1983, compared with 63.4 at the end of last year, according to the median of 43 forecasts in a Bloomberg News survey of economists. Separate reports may show a seventh monthly increase in construction spending and gains in income and consumer purchases during December. The pace of growth in the last six months of 2003 was the strongest in almost two decades, causing inventories to drop to record lows. Reduced stockpiles and rising sales suggest that manufacturers will be ramping up production to keep pace.
``Strong gains in demand from consumers, businesses and foreigners combined with low inventories are forcing manufacturers to step up production,'' said Steven Wood, president of Insight Economics in Danville, California. The Tempe, Arizona-based institute's report is scheduled for release at 10 a.m. Washington time. It surveys more than 400 companies in 20 industries, including clothing, printing, transportation, furniture and plastics. Manufacturing accounts for about one-seventh of the economy. The group's index has been greater than 50, signifying growth, since June.
Construction Spending
Construction spending is forecast to rise 0.7 percent in December after a 1.2 percent rise, reflecting increased homebuilding, according to the median estimate in a Bloomberg survey. That report is also scheduled for release at 10 a.m. Consumer spending in December may have increased 0.4 percent, matching the November rise. Incomes, restrained by a shorter workweek during the month, probably increased 0.2 percent in December after a 0.5 percent gain. The Commerce Department's report is due at 8:30 a.m. ``We've definitely seen an uptick in activity,'' said Keith Block, Oracle Corp. executive vice president for North America, during a conference with analysts' Wednesday. ``It's an upturn in activity that we didn't see nine months ago. The economy appears to be picking up.'' Oracle, the world's third-largest software maker, said fiscal third-quarter sales will increase 7 percent to 10 percent, the same as forecast in December.
Lean Inventories
Four consecutive months of production increases as of December failed to keep inventories from falling relative to sales last quarter. Manufacturers of long-lasting, big-ticket items such as computers and automobiles had enough stock on hand to meet 1.41 months worth of sales at the current pace, an all- time low, figures from the Commerce Department showed. Xilinx Inc., the world's biggest maker of programmable semiconductors, is building inventory after stock of its chips got ``too lean,'' Chief Financial Officer Kris Chellam said last week in a televised interview with Bloomberg News. Demand for the semiconductors used in communications equipment, DVD players and mobile phones may lead to a jump of as much as 32 percent in sales this quarter and is forcing the San Jose, California-based company to keep more chips on hand, Chellam said.
The economy grew at an average of 6.1 percent in the last six months of 2003, the strongest performance since the first half of 1984. It's projected to grow at a 4.3 percent annual pace this quarter and expand 4.4 percent for the year, according to the median estimates in a Bloomberg News survey of economists earlier last month. The economy grew 3.1 percent in 2003. Regional surveys are signaling manufacturing continues to improve at the start of this year. A gauge of Chicago-area manufacturing rose in January to the highest reading in almost 10 years as orders gained and production jumped to a 20-year high, a survey of purchasing managers showed today. An index of New York state manufacturing rose to a record in January, according to the Federal Reserve Bank of New York, and the Philadelphia Fed's January factory index rose to the highest in more than 10 years. //www.bloomberg.com