New York Manufacturing Index Rose Near 2-Year High in September

Sept. 15 (Bloomberg) -- Manufacturing in the New York region grew in September at the fastest pace in almost two years, a sign factories are helping pull the economy out of a recession.

The Federal Reserve Bank of New York’s general economic index increased to 18.9 from 12.1 in August, the bank said today. Last month’s report was the first time since April 2008 that the reading was above zero, the dividing line between expansion and contraction for the Empire State index.

Efforts to free up credit are helping to create demand for manufactured goods at the same time that companies start to rebuild stockpiles as the global economy shows signs of emerging from a recession. Such demand may help sustain some growth even as the effects of the government’s automobile trade-in incentives wind down.

“You’re starting to see new orders pick up, production pick up, and all those things are positive for manufacturing,” Maxwell Clarke, chief U.S. economist at IDEAglobal Inc. in New York, said before the report. “That’s going to be the story of the second half of this year: a rebound in manufacturing leading us out of the recession.”

Economists forecast the Empire manufacturing gauge would rise to 15, according to the median of 50 projections in a Bloomberg News survey. Estimates ranged from 5 to 18.

Today’s report is among the first on September factory activity. The Philadelphia Fed is scheduled to release its general economic index on Sept. 17. The Institute for Supply Management’s national manufacturing gauge for August showed expansion for the first time in 20 months.

Orders

The New York Fed’s measure of new orders increased to 19.8, the highest in almost two years, from 13.4. A gauge of shipments dropped to 5.3 from 14.1. The index of inventories fell to minus 25 from minus 22.3.

A record pace of inventory draw downs in the first six months of the year helped set up factories for growth and is one factor that may lead to the first quarter of growth for the U.S. in more than a year.

The economy will grow at a 2.9 percent annual rate from July through September, according to the median of 61 estimates in a monthly Bloomberg News survey released last week.

Factories showed “modest improvements” in most regions, the Federal Reserve’s Beige Book business survey said last week. Companies were “cautiously optimistic,” with New York among three districts reporting that contacts “expect modest growth later this year or early 2010.”

Prices Paid

The index of prices paid increased to 20.2 from 13.8, while the gauge of prices received rose to minus 3.6 from minus 12.8. A measure of employment decreased to minus 8.3 from minus 7.5.

Factory executives in the New York Fed’s district, which includes New York state, northern New Jersey and one county in Connecticut, were more optimistic about the future. The gauge measuring the manufacturing outlook rose to 52.3, the highest since October 2004, from 48.2.

The Obama administration’s “cash for clunkers” auto trade-in program may be helping auto suppliers in the region. While the auto plan ended Aug. 24, it produced almost 700,000 purchases and the number of cars and light trucks sold in August had the biggest month-to-month gain in almost eight years.

Foreign demand as the global economy recovers may also help U.S. factories. Exports rose 2.2 percent in July, according to Commerce Department report released Sept. 10.

Alcoa Inc. Chief Executive Officer Klaus Kleinfeld on Sept. 3 raised his 2009 forecast for global aluminium consumption because of demand triggered by China’s stimulus spending. New York-based Alcoa, the largest U.S. aluminium producer, is now expecting global demand to decline 5.5 percent, compared with a previous forecast of a 7 percent drop, he said.

Kleinfeld also said stimulus spending in China and the U.S. would affect Alcoa’s results “positive.”