Aug. 2 (Bloomberg) -- The manufacturing rebound that propelled the U.S. out of the recession cooled in July, reflecting a slowing in orders and production. The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month, exceeding the median forecast of economists surveyed by Bloomberg News, from 56.2 in June. Readings greater than 50 indicate growth. The group’s bookings gauge, considered a leading indicator, fell to a one-year low. “It’s important to keep an eye on the new-orders index, which has lost a lot of ground in the past two months,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, who accurately forecast the ISM reading. “It’s signaling a slower pace of growth, though it still suggests expansion in the economy.” Stocks climbed, boosted by improving earnings and relief that factories held up better than estimated, easing the risk the world’s largest economy would again slump. Growing overseas demand and a pickup in business investment are lifting companies like Caterpillar Inc., while Federal Reserve Chairman Ben S. Bernanke today said rising wages will spur consumer spending. The moderation in manufacturing compares with a pickup in Europe and a more pronounced slowing in China. The 16-nation euro region factory gauge increased to 56.7 from 55.6 in the previous month, signaling the region’s factories are overcoming the debt crisis, data from London-based Markit Economics showed today. An index of purchasing managers in China slid to 49.4 from 50.4 in June, according to figures from HSBC Holdings Plc and Markit. Shares Rally The data helped shares rally, sending the MSCI World Index to an 11-week high, while crude oil climbed above $81 a barrel and U.S. Treasury securities dropped. The Standard & Poor’s 500 Index rose 2.2 percent to 1,125.86 at the 4 p.m. close in New York. The yield on the benchmark 10-year note rose to 2.96 percent from 2.91 percent late on July 30. The median estimate of 74 economists surveyed projected the ISM index would drop to 54.5. Forecasts ranged from 52.5 to 56. The factory gauge has peaked and will probably hold above 50 for the rest of the year, Norbert Ore, chairman of the ISM manufacturing survey, said in a conference call with reporters. The slowdown in orders was a “major concern,” he said, adding it will require a pickup in consumer spending to sustain the recovery beyond gains in exports and business investment. Manufacturing “is not really getting help from the rest of the economy,” Ore said. “Job creation is not happening very quickly.” Bernanke’s Outlook Bernanke said that help may soon come as Americans will probably ratchet up their spending in coming months. “Rising demand from households and businesses should help sustain growth,” and consumer spending “seems likely to pick up in coming quarters from its recent modest pace,” the Fed chairman told lawmakers in Charleston, South Carolina. A report from the Commerce Department today also showed construction spending unexpectedly rose in June, boosted by a gain in government programs that made up for declines in private residential and commercial projects. The 0.1 percent increase in outlays followed a revised 1 percent drop in May that was larger than previously estimated. The ISM’s new orders measure dropped to 53.5, the lowest level since June 2009, from 58.5. The measure was as high as 65.7 in May. The group’s production gauge decreased to 57 from 61.4. Jobs, Exports Other areas were more upbeat as employment and exports grew at a faster pace. Factories have boosted payrolls by 136,000 workers so far this year through June and a Labor Department report on Aug. 6 may show another manufacturing employment increased again last month, according to economists surveyed. Caterpillar, the world’s largest maker of construction equipment, this month raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment. “You’ve got strong growth in India and China that provides demand for commodities,” Ed Rapp, chief financial officer of the Peoria, Illinois-based company, said in an interview on July 22. “Most of the mining is happening in the developing parts of the world.” Further gains in manufacturing require a pickup in consumer spending, which accounts for about 70 percent of the economy. A Commerce Department report last week showed second-quarter gross domestic product grew at a 2.4 percent annual pace, less than the median forecast of economists surveyed by Bloomberg, as household purchases cooled. Bloomberg Poll A lack of jobs is one reason consumers aren’t convinced the U.S. is in recovery. More than 7 out of 10 Americans say the economy is still mired in recession, according to a Bloomberg National Poll. The U.S. lost 8.4 million jobs during the slump that began in December 2007. President Barack Obama’s administration in trying to change such perceptions heading into the November elections that will determine the makeup of Congress. Obama last week said the “tough decisions” he made to give almost $60 billion in aid to the U.S. auto industry saved a million jobs and led to the strongest period of growth for automakers in a decade. To contact the reporter on this story: Shobhana Chandra in Washington at [email protected]
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