May 1 (Bloomberg) -- Measures of U.S. manufacturing and consumer confidence last month unexpectedly jumped to their highest levels since the credit crisis intensified in September, indicating the economy is on the mend.
The Institute for Supply Management’s factory index rose to 40.1 from 36.3 in March; readings less than 50 signal a contraction. The Reuters/University of Michigan final index of consumer sentiment jumped by the most in more than two years, climbing to 65.1.
The figures may be the clearest signal yet that Federal Reserve and Obama administration efforts to lower borrowing costs and unclog lending are starting to pay off. The worst economic slump in at least half a century is still likely to persist for months as companies from Caterpillar Inc. to Chrysler LLC and General Motors Corp. continue to cut back.
“The recession’s end may be drawing closer,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This is clearly good news and policy makers and the president’s economics team will breathe a sigh of relief.”
U.S. stocks rose helped by the confidence and manufacturing figures. The Standard & Poor’s 500 index closed up 0.5 percent at 877.52. Treasury securities fell, pushing the yield on the 10-year note to 3.15 percent at 4:53 p.m. in New York from 3.12 percent late yesterday.
Factory Orders
A separate report from the Commerce Department showed factory orders dipped in March after a February gain, suggesting any manufacturing recovery is likely to be gradual.
Companies cut stockpiles last quarter at the fastest pace on record, bringing forward the day when production and employment stabilize and help right the world’s largest economy.
Economists forecast the ISM’s manufacturing measure would increase to 38.4, according to the median of 67 projections. Estimates ranged from 35 to 42.2. The Michigan sentiment index was projected to rise to 61.9, according to the median of 52 estimates. Forecasts ranged from 57.3 to 64.
The ISM’s gauge of new orders climbed to 47.2, the highest level since August, from 41.2 the prior month, and the measure of export orders improved to 44 from 39. The production gauge increased to 40.4 from 36.4.
‘Encouraging’ Report
“This is the first report we’ve seen in quite some time we can call very encouraging,” Norbert Ore, chairman of the ISM factory survey, said in a conference call from Atlanta. “It certainly looks like the worst is over.”
The group’s employment index rose to 34.4 from 28.1.
The Labor Department is scheduled to release its April employment report on May 8. U.S. employers may have eliminated more than 600,000 jobs for a fifth consecutive month, according to a Bloomberg survey.
The consumer sentiment gauge rose from 57.3 in March, posting the biggest gain since October 2006. The index reached a three-decade low of 55.3 in November.
Record-low mortgage rates, cheaper gasoline and surging stock prices are providing some relief to the beleaguered American consumer in the face of mounting unemployment and tumbling home prices.
Christina Romer, head of the White House’s Council of Economic Advisers, told lawmakers yesterday that “glimmers of hope” for an economic recovery were emerging. Still, she added, “in the short run, we are still in for more bad news.”
Slump Deepened
The U.S. economy contracted at a 6.1 percent annual rate in the first quarter, worse than economists forecast, marking the weakest performance since 1957-1958. Inventories dropped at a record $103.7 billion rate in the first three months of the year, which some economists said may set the stage for better results this quarter.
Consumer spending rose at a 2.2 percent pace last quarter following its longest slump in nearly three decades. Still, economists surveyed by Bloomberg in the first week of April forecast spending will slump again in the second quarter before picking up in the second half.
Automakers have been the worst hit among manufacturers. Chrysler yesterday proceeded with a Chapter 11 bankruptcy filing to reorganize into a more viable carmaker in a partnership with Italy’s Fiat SpA.
Chrysler will idle most of its factories on May 4 while in court because suppliers are halting shipments. Regular production may resume when the company emerges, or sooner if it resolves supply issues, Tom LaSorda, a company president said yesterday. LaSorda also announced his retirement.
Replenish Stocks
Still, cutbacks in inventories are helping others. Dow Chemical Co., the largest U.S. chemical maker, said yesterday global demand has improved each month since December and customers have now used up their stockpiles. Its shares rose the most in at least 28 years in New York trading.
“There are some signs that the pace of global economic decline is moderating,” Dow’s Chief Executive Officer Andrew Liveris said in a statement. “It’s prudent to expect that 2009 will still be a recessionary year globally, and we are not counting on material improvements in economic conditions in the near term.”
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