NEW YORK/CHICAGO (Reuters) – U.S. manufacturing companies posted higher-than-expected results, as sharply improved margins boosted profits amid strong industrial demand and growth in emerging markets.

Companies including Catepillar Inc., Tyco International Ltd and Eaton Group reported strong sales and earnings, and investors were looking ahead for signs the industrial rebound would begin to affect the wider economy and boost employment.

Catepillar provided an encouraging sign for U.S. jobs but also showed that employment remains one of the main ways companies can control profit margins.

The machinery maker, which slashed nearly 30,000 full-time and contract jobs worldwide during the recession, said it had rehired about 8,200 workers worldwide in 2010, and hired another 11,000 temporary contract workers, half in the United States.

“A lot of that driven by export demand, so that was an increase in employment,” Caterpillar’s head of investor relations, Mike DeWalt, said on a conference call. “But if you look at sales, sales went up quite a bit more than that.”

Caterpillar’s operating margins jumped from 2 percent a year ago to 10 percent in the fourth quarter. Other large industrial names also expanded margins.

Caterpillar shares were up 1.7 percent at $97.33, an all-time high for the industrial bellwether.

Caterpillar reported a stronger-than-expected quarterly profit, lifted by increased sales of its machines in Asia and Latin America and a sharp rebound in demand in North America, especially from mining customers. The company also forecast it would post a 2011 profit near $6.00 per share, which is above the market consensus.

ADDING JOBS

“So far so good,” said Oliver Pursche, president of Gary Goldberg Financial Services, about the earnings season for manufacturing companies. He added that corporate comments on jobs were one of the key factors he was listening for as an investor.

“The more they talk about hiring, the more comfortable we’re going to be with that company. If you’re hiring people, your business is growing.”

Eaton is likely to grow its workforce by a few percentage points this year as markets such as autos, aerospace and non-residential construction recover from recession, the diversified industrial company’s CEO said.

“You’ll see hiring here in the U.S. as well as around the world,” Sandy Cutler told Reuters.

Eaton’s quarterly profit beat expectations on a strong truck market and higher demand for its electrical systems. The maker of hydraulics, truck transmissions and other industrial products forecast record 2011 earnings, set a stock split and announced a 17 percent dividend increase.

Tyco’s quarterly earnings more than doubled, beating Wall Street expectations amid sharply higher profits at the conglomerate’s security business, which includes the former ADT Worldwide service.

Tyco, which said it was close to finalizing acquisitions worth around $500 million, also raised its full-year forecast. Its shares were up 0.8 percent at $45 in afternoon trading. It was one of many stocks trading near multiyear highs.

Industrial shares rose 24 percent last year, lagging only the consumer discretionary sector, according to Standard & Poor’s, which recommends investors stay “overweight” in industrials amid expectations of continued global expansion.

The sector has also outrun the broader stock market in 2011, and a correction could be imminent, S&P said.

As companies keyed to industrial demand continued a trend of beating Wall Street forecasts, investors took profits in some names, like Kennametal Inc. and Timken Co.

Tool maker Kennametal, considered a pure play on industrial production, raised its full-year forecast above Street estimates amid strong demand from industrial and transportation markets. Profit at Timken, maker of bearings and specialty steel, was helped by auto and truck production and an ability to push through higher prices.

Electrical and electronics products maker Hubbell Inc also beat, as did Harsco, which provides products to metals producers.

Conglomerate Danaher Corp. showed sharply higher profits in its industrial components and test-and-measurement segments. It affirmed 2011 earnings targets.

“We expect the global economy to continue to improve in 2011, lead by the emerging markets,” Danaher CEO Larry Culp said on the company’s conference call.

WIDESPREAD OPTIMISM

Optimism among manufacturing executives is widespread. Sixty-three percent are upbeat about U.S. economic prospects over the next 12 months, according to a quarterly survey by PricewaterhouseCoopers. That marked a 28-point increase over the prior quarter.

Still, fewer than half — 48 percent — plan to add employees over the next year, PwC found, partly reflecting concerns about taxes, regulation and soft demand.

Worries about corporate taxes, especially, may keep U.S. companies from significantly boosting capacity until the second half of 2011, said analyst Brian Langenberg of Langenberg & Co. U.S. consumers remain constrained by the housing market.

A reminder that not all is well on the housing front came from the No. 1 homebuilder, DR Horton Inc, which posted a wider-than-expected loss.

“Industrial production is increasing on a global basis,” Langenberg said. “(Manufacturers) need to increase capital spending.

“When do they have to boost capacity? Now. Where? Not necessarily in the U.S.”

(Reporting by Nick Zieminski and James B. Kelleher; Additional reporting by Scott Malone in Boston; Editing by John Wallace, Matthew Lewis, Phil Berlowitz)

By REUTERS
Published: January 27, 2011

Filed at 3:04 p.m. ET

WASHINGTON  — Consumer confidence hit an eight-month high in January. The increase suggests the rising spirits that fueled a holiday shopping boom are carrying over into the new year as people feel better about the job market.

The Conference Board said today its Consumer Confidence Index climbed to 60.6 this month from 53.3 in December.

Click HERE for YouTube video.

While confidence is still far from the 90 that signals a healthy consumer mindset, the January improvement was better than expected. Some economists said the big tax relief package Congress passed in late December may have helped.

“So much for a ho-hum January,” said Jennifer Lee, senior economist at BMO Capital Markets. “The signing of the stimulus bill and all that it is intended to bring is buoying sentiment.”

The $858 billion package extended the Bush-era tax relief at all income levels for two years, provided tax breaks for businesses and reduced Social Security payroll taxes by 2 percentage points this year. The Social Security reduction will mean an estimated $1,000 in additional after-tax income for the average family, according to White House estimates.

Other analysts suggested that the recent gains in the stock market and improving labor market conditions were trumping higher gasoline prices and falling home prices. The Standard & Poor’s/Case-Shiller 20-city index showed home prices falling in most of America’s largest cities and hitting their lowest point since the housing bust in eight markets.

“The recovery in stock prices and the beginnings of an improvement in the labor market are making people feel better about the economy,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The January confidence figure was the highest last May’s 62.7. At that time, consumer attitudes were improving as economic growth seemed to be taking off. However, the economy stalled in the summer, and so did confidence.

Confidence has been depressed by unemployment that surged during the country’s worst recession since the 1930s and has stayed stubbornly high even though the downturn ended in June 2009. Confidence has not been above 90 since the recession began in December 2007.

In the Conference Board survey, the percentage of people surveyed who felt jobs were hard to get fell slightly to 43.4 percent from 46 percent in December. The share who expected to see more jobs six months from now rose to 16 percent from 14.2 percent.

That finding supported a separate report Monday from the National Association for Business Economics that showed the number of firms expressing positive views on hiring had climbed to the highest level in 12 years.

While confidence has stayed weak since the recession ended in summer 2009, consumer spending has been picking up. During the 2010 holiday shopping season, sales increased at the fastest rate in six years.

Economists are hoping that consumer confidence will keep rising in 2011 as the economy improves and unemployment declines.

Employers added 1.1 million jobs for all of 2010, but the nation still has 7.2 million fewer jobs than it did in December 2007, when the recession began. Many economists expect the nation will create twice as many jobs this year as it did last year as economic growth picks up.

The Conference Board confidence index was based on answers to questions from a survey of 5,000 U.S. households taken through Jan. 18.

By Martin  Crutsinger Associated Press
Jan.25, 2011, 2:28PM

Under the headline “Industrial Economy Builds Fresh Strength,” the Wall Street Journal (1/21, Tita, Hagerty, subscription required) quotes Jefferies & Co. analyst Stephen Volkmann as saying, “The industrial economy is stronger than many people believe.” He added, “I think there are still some legs to this recovery just to get back to normal levels” in the wake of the recession. The Journal notes earnings reports from industrial companies have been largely positive, which is portrayed as a good sign for coming reports. CEO Don Washkewicz of Parker Hannifin, which doubled its year-on-year profit for the fiscal quarter, said, “Based on the way these orders are coming through, I think this [rebound] is going to be sustainable.” Rockwell Collins and Johnson Controls also reported strong results.

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Sector Creating More Jobs Than It’s Cutting; ‘Shining Star’

The economists’ projections for this year—calling for a gain of about 2.5%, or 330,000 manufacturing jobs—won’t come close to making up for the nearly six million lost since 1997. But manufacturing should be at least a modest contributor to total U.S. employment in the next couple of years, these economists say.

After a steep slump during the recession, manufacturing is “the shining star of this recovery,” says Thomas Runiewicz, an economist at IHS. He expects total U.S. manufacturing jobs this year to rise to about 12 million. Currently, manufacturing jobs account for about 9% of all U.S. nonfarm jobs; the average pay for those jobs is roughly $22 an hour, or nearly twice the average for service jobs, according to government data.

Despite the upbeat forecasts, job growth may remain modest because many companies are finding ways to increase production through greater efficiency and automation, without adding many workers. In the third quarter, U.S. manufacturing productivity increased as output rose 7.1% from a year earlier and hours worked grew just 3%. Conrad Winkler, a vice president at the consulting firm Booz & Co. who focuses on manufacturing, says manufacturers are being very cautious in their hiring, partly to avoid the risk of having to lay off people later on.

Manufacturing is going to be a significant source of job growth over the next decade,” says Mark Zandi, chief economist at Moody’s Analytics. He says U.S. manufacturers that survived the brutal 2008-09 recession are now very competitive, with much lower labor costs and debt burdens, and so can afford to expand. While they will keep building factories overseas to address demand in emerging markets, they also will invest in U.S. plants, Mr. Zandi says. He expects manufacturing job growth to average about 2% a year through 2015.

The job growth is expected as companies replace aging equipment, take advantage of government incentives, seek energy savings and rediscover that it makes sense to produce some products, such as ovens and construction machinery, at home rather than shipping them long distances. A new tax break, approved by Congress in December, is expected to further stimulate investment by letting companies deduct from taxable income 100% of certain types of investments in 2011.

By James R. Hagerty
Wall Street Journal – Business 1/19/2011
Write to James R. Hagerty at bob.hagerty@wsj.com

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Manufacturing in the U.S. expanded in December at the fastest pace in seven months, reinforcing signs the expansion is gaining momentum.

The Institute for Supply Management’s index climbed to 57 last month from 56.6 in November, the Tempe, Arizona-based group said today. A reading greater than 50 points to expansion, and the figure matched the median forecast of economists surveyed by Bloomberg News.

Stocks rallied, sending benchmark indexes up the most in a month, on speculation U.S. growth will keep strengthening in early 2011, raising prospects for more hiring. Increased spending by American consumers and business investment is helping drive production gains at factories that make up about 11 percent of the world’s largest economy.

“The factory sector is growing at a brisk pace, and it’s getting fueled by both U.S. demand and growth in exports,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, who correctly forecast the ISM figure. “The economic recovery will get help from manufacturing.”

Former Federal Reserve Governor Frederic Mishkin today said that while the central bank will complete its $600 billion bond- purchase program to help fuel the economy, a third round of so-called quantitative easing is unlikely.

“The fact that the economy is stronger right now makes it much less likely we’re going to see a QE3,” Mishkin, an economist at Columbia University in New York, said today in an interview on Bloomberg Television’s “In the Loop With Betty Liu.”

Click HERE for the video on the interview with Frederic Mishkin, a professor at Columbia University and former Federal Reserve governor.

Stocks Rally

The Standard & Poor’s 500 Index increased 1.1 percent to 1,271.87, its highest close since Sept. 3, 2008, as of 4 p.m. in New York. The benchmark 10-year Treasury note declined, pushing up the yield to 3.34 percent from 3.3 percent late on Dec. 31.

Another report today showed construction spending rose in November for a third month, helped in part by federal government projects. A 0.4 percent gain followed a 0.7 percent increase in October, the Commerce Department said.

The median ISM forecast of economists in the Bloomberg survey was based on 63 projections and estimates ranged from 55 to 60. The U.S. data followed a report that European manufacturing expanded more than initially estimated in December, powered by Germany’s export-led expansion.

A gauge of factory activity in the euro area rose to 57.1 from 55.3 the previous month, London-based Markit Economics said today. That’s higher than the 56.8 reported earlier for December.

China’s Economy

China’s manufacturing growth, meanwhile, slowed in December partly because of tighter monetary policy. A purchasing managers’ index fell to 53.9 from a seven-month high of 55.2 in November, China’s logistics federation and the statistics bureau said Jan. 1.

St. Petersburg, Florida-based Jabil Circuit Inc., which provides manufacturing services, is one company benefiting from stronger emerging economies such as China and India. Jabil said Dec. 20 that its revenue rose $4.1 billion in the three months ended Nov. 30, up from $3.1 billion a year earlier.

“At this point, in terms of U.S. spending, enterprise spending looks stable,” Timothy Main, chief executive officer of Jabil, said on a teleconference with analysts on Dec. 20. “International spending looks very strong and other areas of enterprise infrastructure are pretty robust.”

Orders, Production

In the U.S., factories reported faster rates of orders and production. The ISM’s bookings measure rose in December to a seven-month high.

“Manufacturers are carrying a good bit of momentum into January,” Norbert Ore, chairman of the ISM factory survey, said today on a conference call with reporters. There is “good balance between new orders and production,” and “there’s still some room” for inventory replenishment, he said.

Further gains in manufacturing may come from a pickup in consumer spending, which accounts for about 70 percent of the U.S. economy. Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance since 2005, according to MasterCard Advisors’ SpendingPulse, which measures sales by all payment forms. The gain was 4.1 percent a year earlier. The numbers include Internet sales and exclude automobile purchases.

Auto dealers are also seeing improved demand. Car sales in November rose to a 12.26 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, according to industry data.

Economists in December boosted forecasts for fourth-quarter growth, reflecting a pickup in consumer spending and passage of an $858 billion bill extending all Bush-era tax cuts for two years. The legislation also continues expanded unemployment insurance benefits through 2011, trims payrolls taxes and includes accelerated tax depreciation for equipment purchases.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Additional interviews on the topic. Please click the picture for the video.

Jan. 3 (Bloomberg) — Drew Matus, senior U.S. economist for UBS Securities LLC, talks about the outlook for the U.S. economy in 2011. Matus, speaking with Deirdre Bolton on Bloomberg Television’s “InsideTrack,” also discusses Federal Reserve monetary policy. (Source: Bloomberg)