Photograph by Natalie Behring/Bloomberg

A worker paints a refrigerated railcar in Portland, Oregon.

The most respected early read on the state of U.S. manufacturing in April came out today and showed factory activity cooled last month. The details of the data suggested the worst may already be over.

The Institute for Supply Management, a Tempe, Arizona-based group of purchasing and procurement managers, said its factory gauge slipped to 50.7 from 51.3 in March. A level of 50 is the dividing line between growth and contraction.

Orders, the most forward-looking component, actually rose, as did production. Order backlogs, which don’t figure into the headline reading, climbed to the second-highest level since early 2011.

The culprits behind the decline in the ISM index were inventories and employment. Less stockpiling combined with rising demand is a powerful mix that will probably generate bigger gains in production down the road.

That prompted economist Millan Mulraine at TD Securities USA Inc. in New York to say: “The bottom in manufacturing-sector activity may have fallen in place in April, with the outlook for the sector beginning to brighten.”

The drop in stockpiling was probably “strategic,” Bradley Holcomb, chairman of the ISM’s factory survey, said  today on a conference call. Declining commodity prices are prompting companies to wait before buying raw materials in hopes of getting them even cheaper, he said.

“Inventories are in a fine position, albeit low, and ready for a build-up,” said Holcomb.

The decline in the ISM’s employment index is more troubling, especially in conjunction with another report today from the Roseland, New Jersey-based ADP Research Institute that showed factories cut 10,000 workers from payrolls last month.

The ISM hiring index came in at the second-lowest level since September 2009, when factories were still trimming staff as the economy was just emerging from the recession.

Even here, though, there may be other issues at work. The data are adjusted for seasonal changes to allow comparisons between months, and there’s the rub.

Jonathan Basile, an economist at Credit Suisse in New York, pointed out that the employment index last month faced the biggest hurdle for any April in the 66-year history of the ISM index — matching that from April 1962.

Because April is typically a strong month for factory hiring, the seasonal-adjustment process projected the employment index would jump 4.5 points. In reality, the unadjusted reading climbed just 0.5 point, which, after taking out the expected gain, left the index down 4 points.

“Despite the downshift in the headline index, we do not see imbalances between supply and demand that would bring the current industrial expansion to a halt,” Basile wrote.

Original post is Data: Manufacturing Slump Less Than Meets the Eye by Political Capital.

Photograph by Scott Eells/Bloomberg

A welder welding the frame of a modular housing unit at the Brooklyn Navy Yard in the Brooklyn borough of New York.

The lower-than-expected reading this morning for U.S. economic growth in the first quarter has revealed a few victims even as growth picked up — among them, factories.

“Manufacturing activity remains weak relative to the larger economy,” in part due to federal budget cuts and tax increases, Chad Moutray, chief economist at the National Association of Manufacturers, said in a statement after the GDP release. “We need to get back to a position where the manufacturing sector is once again making significant contributions to output and employment. This means that we need higher GDP growth to get back on track.”

The U.S. economy grew less than forecast in the first quarter as a drop in defense outlays undercut the biggest increase in consumer spending in two years. Business investment also slowed. GDP rose at a 2.5 percent annual rate, lower than forecast, after a 0.4 percent fourth-quarter advance, according to the Commerce Department data.

The GDP figures cap a week of slumping production data, including readings from the Kansas City and Richmond Federal Reserve banks showing contraction in those regions. The Markit Economics preliminary index of U.S. manufacturing fell to 52 in April from a final reading of 54.6 a month earlier, the London-based group said earlier this week.

Disappointing April production figures from the Euro zone, Germany and China are also weighing on the U.S., Scott Anderson, chief economist at Bank of the West in San Francisco, said in a research note.

“The data suggest the U.S. economy is participating in a synchronized global manufacturing slowdown,” Anderson said.

Next week will bring results from the Dallas Federal Reserve, Chicago’s business barometer and the Institute for Supply Management’s manufacturing survey. This will confirm if things are indeed turning for the worse.

Original post is Behind the Growth: Manufacturing Lags by Political Capital.

The MNI Chicago Report’s business barometer for December was up for a second month, rising to 51.6 in December from 50.4 the previous month. A reading of 50 is the dividing line between expansion and contraction.

Still, the positive reading may be outweighed by discouraging figures in the sub-indices of the report, including an employment gauge that registered its lowest level since November 2009. Business owners have been hesitant to invest and hire as they await a deal in negotiations to avert automatic tax increases and government spending cuts slated to start Jan. 1.

“Employment caved in big time, and that shows reluctance to hire amid all the uncertainty we have and the fact that activity is still pretty weak,” said Sean Incremona, senior economist at 4Cast Inc. in New York, who forecast a rise in the index to 51.5.

The MNI report corroborates a stronger-than-expected reading in the Dec. 20 Philadelphia manufacturing survey, which showed the largest expansion in eight months. Yet an index of business activity in the New York area contracted in December for a fifth straight month.

“There’s just not a lot of momentum one way or another in the manufacturing sector,” said Tom Simons, an economist at Jefferies Group Inc. in New York. The industry “doesn’t look like it’s going to be fueling the recovery again anytime soon. If there is a break in the fiscal cliff talks and confidence returns quickly, that all is sort of moot, but that doesn’t look likely at this point.”

The more than three-year low in the employment measure of the Chicago report was released one week before the Labor Department’s monthly payroll data. A Bloomberg survey of 43 economists shows a median estimate of 150,000 new jobs in December compared to last month’s 146,000.

Original post is Hiring on Hold as Businesses Watch Talks in Washington by Political Capital.

Photograph by Tim Boyle/Bloomberg

A worker in Chicago.

Bad news for Democrats as they gather for the start of their national convention in Charlotte: A survey showed U.S. manufacturing contracted for a third straight month in August, and the Gallup Poll’s monthly economic confidence index hit its 2012 low.

The Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009, from 49.8 in July, the Tempe, Arizona-based group said today. Economists in the Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction. Measures of orders and production dropped to three-year lows.

Meanwhile, Gallup’s economic confidence index has dropped 10 percentage points from -17 in May, and the figure for August matches the -27 it registered in January, Gallup said.

A politically troubling finding in the index for President Barack Obama’s re-election bid is that, among independent voters, economic confidence sagged to a new 2012 low of -33. That’s an 11 percentage point drop since May for independent voters, the electoral bloc Obama needs to win a second term.

Obama supporters may be able to console themselves that the overall Gallup economic confidence index is better than the -52 that was registered in August, 2011. That’s when the financial markets were in turmoil following the stand-off in Congress over extending the government’s borrowing authority, a political fight that prompted Standard & Poor’s to strip U.S. debt of its AAA rating for the first time in history.

It dropped to -60 one day in October, 2008, during the financial crisis the preceded Obama’s election the following month.

Original post is Democrats See Negative Economic News on Convention’s Day One by Political Capital.

Photograph by Ty Wright/Bloomberg

A welder in Owensboro, Kentucky.

As Democrats gather in Charlotte to nominate President Barack Obama for a second term, a pillar of the economic recovery showed some cracks.

The Institute for Supply Management said today American factories pulled back in August for a third consecutive month, the worst performance since the end of the recession and early days of recovery in mid-2009.

Members of the purchasing managers’ group have a finger on the pulse of nation’s plants because they are the ones charged with buying the materials needed to keep assembly lines running.

The data showed dwindling orders and shrinking backlogs prompted factories to cut production for the first time in three years.

“As I look at this and try to find some rays of sunshine, it’s quite difficult,” Brad Holcomb, chairman of the ISM manufacturing survey, said on a conference call with reporters. “I would characterize this as a sobering picture of U.S. manufacturing right now without any clear signs of immediate improvement.”

One reason for the dreary outlook was that the most forward-looking aspects of the report, namely orders, sank to the weakest point since April 2009, during the last recession.

At the same time, inventories were the most elevated in almost a year.

Fewer bookings and growing stockpiles aren’t a recipe for a quick turnaround, which may keep activity depressed for months.

One caveat is that the report is a measure of sentiment rather than hard facts. In other words, purchasing managers have a good sense of what’s happening on the factory floor from conversations with production managers and the head of human resources for example, rather than the actual number of widgets produced or the number of workers hired or fired.

Another, is that one key area of manufacturing, namely auto making, continues to show progress. Chrysler, Ford and GM said today U.S. sales rose more in August than analysts estimated as the carmakers introduced new models.

As the president who pushed for the bailout of the auto industry during the depths of the recession, Obama can take some solace in that this week.

Original post is Longest Slide in Manufacturing Since ’09 Shows Economic Cracks by Political Capital.

Photograph by Jae C. Hong/AP Photo

Mitt Romney at a campaign rally held at the closed National Gypsum drywall factory in Lorain, Ohio, on April 19, 2012.

It seemed like the perfect political setting for Mitt Romney. A shuttered dry-wall factory in Lorain, Ohio — a swing state hit hard by the recession – where four years ago then-candidate Obama promised to turn-around the economy.

“It would have reopened by now but it’s still empty,” Romney said, standing in the middle of an empty warehouse floor. “It underscores the failure of this president’s policies with regards to getting the economy working again.”

The only problem? The factory actually closed in June 2008, seven months before Obama took office. And during the Obama administration, unemployment has actually fallen in Ohio from 8.6 percent in January 2009 to 7.6 percent in February 2012.

“If Mitt Romney wants to convince the American people that he will ‘tell the truth,’ he might want to start by ending his deceptive rhetoric on the campaign trail,” said spokeswoman Lis Smith, in a statement.

The dry-wall dust-up illustrated one of the major questions of the election: Is Obama to blame for the slow economic recovery?

For Romney, the answer is, of course, yes. While Obama didn’t start the recession, Romney’s aides argue that White House policies have lengthened the economic slow-down and deepened the pain felt by American families.

“The fact that it struggled through the last three years is not the fault of Barack Obama’s predecessor,” said spokesman Eric Fehrnstrom, of the factory. ”It’s the fault of this administration and the failure of their policies to really get this economy moving again.”

The Obama administration counters that under their administration the economy has begun to rebound.

“We’ve gone from losing 750,000 jobs a month when he took office to creating over 4 million private sector jobs in the last 25 months,” said Smith.

But more than economic indicators, the election will turn on how voters feel about their personal financial situation. So far, even though the economy is improving, surveys show that most voters do not yet feel major impacts.

Nearly two-thirds of people are worried about paying for their housing and 20 percent of people with mortgages say they are underwater, according to the latest New York Times/CBS News poll.

Original post is Romney Visits Factory Closed Under Bush, Blames Obama by Political Capital.

Photograph by Aaron Showalter/Pool via Bloomberg

President Barack Obama, right, with David Cameron, U.K. prime minister, in New York, on Sept. 21, 2011.

That’s how many manufacturing jobs Ohio has lost in the past 10 years.

President Obama heads to Ohio today with British Prime Minister David Cameron, not to talk manufacturing jobs, but to watch the start of March Madness. The White House says this high-profile visit is not a political move. Regardless of one’s belief in the administration’s claim, it’s madness not to think this sports outing to such a key battleground state isn’t a potential political win.

But can the president win on the numbers?

As he faces Ohio voters in what will likely be many visits to the state over the next eight months, Obama will have to walk the fine line between playing up the 30,000-person rebound in the past two years and sounding tone deaf to the continued hardships. Manufacturing employment in Ohio was 639,300 in December 2011, up from low of 609,300 in November 2009, helped by a federal bailout – opposed by Rick Santorum and Mitt Romney – of the auto industry that aided Ohio.

Original post is Magic Number of the Day: 269,400 by Political Capital.