U.S. manufacturing unexpectedly accelerated in September as production picked up, easing concern of a slump in the industry that led the economic recovery. The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group’s data today. A level of 50 is the dividing line between growth and contraction. Economists forecast the measure to fall to 50.5, according to the median projection in a Bloomberg News survey. A pickup in manufacturing that accounts for about 12 percent of the economy may have been helped by an easing of supply constraints following the earthquake in Japan earlier this year. In an effort to provide a boost for the recovery at the same time concerns of a European sovereign debt default roil financial markets, the Federal Reserve last month announced another round of unconventional policy. “We’re seeing the post-Japan rebound in auto production and auto sales,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who projected a reading of 52. “That’s pushing up the production index, but new orders remain relatively anemic. There is still some underlying weakness, but we’re getting that post-Japan rebound.” Estimates for the manufacturing index from 82 economists ranged from 45 to 52. While 50 is the midway point between expansion and contraction in the industry, a reading above 42.5 generally indicates an expansion in the overall economy. Stocks rose, erasing earlier losses, after the report and separate data showing construction spending increased in August. The Standard & Poor’s 500 Index gained 0.4 percent to 1,135.86 at 10:17 a.m. in New York. Construction spending rose 1.4 percent, reversing a 1.4 percent drop in July, Commerce Department figures showed. European Manufacturing European manufacturing shrank for a second month in September, adding to signs the euro-area economy is close to recession. A factory gauge based on a survey of purchasing managers in the 17-nation euro region fell to 48.5 from 49 in August, London-based Markit Economics said today. A Chinese manufacturing index advanced for a second month in September as a measure of new export orders rebounded to the highest level since May. The Purchasing Managers’ Index was at 51.2, a four-month high, compared with 50.9 in August, the China Federation of Logistics and Purchasing said in a statement Oct. 1. Today’s ISM report on the U.S. showed the production index climbed to 51.2 in September from 48.6 in August. The new orders measure held at 49.6, and the gauge of export orders rose to 53.5 from 50.5. Prices Paid The index of prices paid rose to 56 from 55.5. A measure of supplier deliveries climbed to 51.4 from 50.6. The inventory index fell to 52 from 52.3, while a gauge of customer stockpiles increased to 49 from 46.5. The employment index rose to 53.8 from 51.8. Today’s report follows recently released surveys that provided a mixed picture of manufacturing. The Institute for Supply Management-Chicago Inc. last week said its U.S. business activity index rose in September to the highest level in three months. Business at New York-region factories shrank for a fourth straight month in September and manufacturing in the Philadelphia area contracted for a third time in four months, figures from the Fed showed. “Significant headwinds continue to challenge the broader recovery from the 2008 financial crisis,” David Sylvester, chief financial officer at office equipment-maker Steelcase Inc. (SCS), said on a Sept. 22 conference call with analysts. “We could feel these pressures again if companies choose to behave conservatively and pull back on spending because of the uncertain landscape.” Federal Reserve Fed officials said last month at their policy meeting that they will replace $400 billion of short-term debt in its portfolio with longer-term Treasuries to help counter the risks of recession. “There are significant downside risks to the economic outlook, including strains in global financial markets,” the Fed’s policy-setting committee said on Sept. 21. Economic growth “remains slow” even as “business investment in equipment and software continues to expand.” Orders for capital equipment like computers and communications gear climbed in August by the most in three months, the Commerce Department’s report on durable goods showed last week. “We are not convinced a pullback in corporate spending is going to occur,” said Sylvester of Grand Rapids, Michigan-based Steelcase. “Many corporate balance sheets are as strong as they have ever been.” To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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