U.S. manufacturing probably expanded in October for the 17th month in a row as orders increased, suggesting demand for factory goods may help underpin economic growth, economists said in advance of today's industry report. A reading of 58.3 is forecast for the Institute for Supply Management's manufacturing index last month, close to September's 58.5, according to the median estimate of 57 economists surveyed by Bloomberg News. The gauge has exceeded 50, showing expansion, since June 2003. The stretch is the longest since 19 months that ended in July 2000. The institute, based in Tempe, Arizona, is scheduled to release the report at 10 a.m. Washington time.
Companies are replacing aging equipment and restocking, helping support fourth-quarter growth prospects as higher energy prices threaten to slow consumer spending, economists said. A Federal Reserve report last week showed that manufacturing expanded in September and early October. Voters cite the economy as a central issue heading into next week's presidential election. The survey gives the final look at U.S. manufacturing before voters go to the polls tomorrow. ``Inventories are very low in most industries, and that's keeping manufacturers fully engaged,'' Mat Johnson, director of economics at ThinkEquity Partners in San Francisco, said. ``Business spending for the next few quarters is going to be the highlight of the economy, offsetting any softening we might see in consumer spending early in the fourth quarter.'' Other reports may show U.S. consumer spending probably rose twice as fast as incomes in September, causing people to dip into savings at a time when energy bills are forecast to rise. The Commerce Department may report that personal incomes rose 0.3 percent last month following a 0.4 percent gain in August, based on the median of forecasts.
Spending
Spending probably increased 0.6 percent after no change a month earlier, the survey also showed. The report is set for 8:30 a.m. in Washington. Another Commerce Department report may show construction spending increased 0.4 percent in September after rising 0.8 percent during August, according to the median of forecasts. The report is scheduled for 10 a.m. in Washington. President George W. Bush and John Kerry, the four-term senator from Massachusetts, are tied in nine of 10 states that both campaigns consider battlegrounds, daily polls by /Zogby show. Among those are Michigan, Ohio, Pennsylvania, and Wisconsin, which have large manufacturing bases. The U.S. economy is expected to grow 4.4 percent this year, the fastest since 1999, helped by business investment, according to economists surveyed by Bloomberg News.
Inventories
Low inventories will probably help boost the new orders component of the factory index and sustain demand for production, ThinkEquity's Johnson said. The ratio of durable goods sales to inventory was at 1.39 months in September, indicating factories have enough goods on hand to satisfy demand for that long at the current sales rate, according to a report Oct. 28 from the Commerce Department. The ratio is well below the 1.56 months average of the past 10 years. It reached an all-time low 1.35 months in March. ``The economy's improving,'' said Harry Stonecipher, chief executive of Chicago-based Boeing Co., the world's second-biggest maker of commercial aircraft, in an interview Oct. 28. ``We think it's up, and we are very encouraged by what we see, and some of the benchmarks we look at says the economy is moving just fine. And so, we're very encouraged.'' Waste Management Inc., the Houston-based company that is North America's largest trash-collector, said third-quarter profit rose 44 percent as an improving economy increased demand for hauling and landfill services.
`Improving'
``What we've seen is eight straight months of increases'' in trash volumes, Chief Executive Officer David P. Steiner said in an interview. ``We're not seeing an acceleration in the economy. We're seeing an improving economy.'' Companies are replacing outdated equipment to take advantage of tax incentives that are set to expire at the end of the year. A provision in the tax law that Bush signed in May 2003 gave an added incentive for buying capital equipment by Dec. 31 of this year. Large companies can write off 50 percent of qualified investments as long as the equipment is delivered by year end. Agco Corp., the second-biggest U.S. farm-equipment maker, said Oct. 29 that third-quarter profit at the Duluth, Georgia, company more than doubled, helped by U.S. farmers who bought tractors in time to take advantage of tax benefits. U.S. orders for durable goods rose in September for the third time in four months, lifted by demand for military equipment and computers, a government report Oct. 28 showed.
Beige Book
The Fed, in its ``beige-book'' regional survey, said Oct. 28 that ``economic activity continued to expand in September and October.'' Manufacturing grew, with ``solid expansion'' reported in the Richmond, Chicago, and Kansas City districts, it said. Some manufacturers said they were able to pass higher energy costs on to customers through price increases, the central bank reported. At the same time, companies surveyed told the Fed they were worried about higher prices for energy and petroleum-based products, metals, and construction materials. Crude oil futures on the New York Mercantile Exchange reached a record $55.67 last week, and have risen by almost two-thirds this year. ``We are seeing cost increases still coming full blast,'' said Rajiv Gupta, chief executive of Philadelphia-based chemical maker Rohm & Haas Co., on a conference call. In an effort to raise prices as fast as costs, the company eliminated price guarantees for customers that lasted as long as six months, Gupta said. Economists including Chris Rupkey at Bank of Tokyo-Mitsubishi in New York said that businesses will probably continue to invest and hire even with the jump in energy prices. ///www.bloomberg.com