Manufacturing Report Bolsters Hopes for Recovery

By: Christopher S. Rugaber AP Email
By: Christopher S. Rugaber AP Email

WASHINGTON (AP) - An unexpectedly strong report on manufacturing
activity Monday bolstered confidence that the nation's factories will help sustain an economic recovery.

The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index read 55.9 in December after 53.6 in November. A reading above 50 indicates growth.

That is the fifth straight month of expansion and the highest reading for the index since April 2006. Analysts polled by Thomson Reuters had expected a reading of 54.3.

A separate report on construction spending sounded a more cautionary note. Construction activity fell in November for a seventh straight month as spending on both residential and commercial projects declined. The 0.6 percent drop was bigger than the 0.4 percent decline that economists had been expecting.

Still, the ISM report said new orders, a signal of future production, jumped last month to 65.5 from 60.3 in November. Indexes measuring production and employment also rose.

The ISM's manufacturing index first showed growth in August after 18 months of contraction. The index's peak in the last decade was 61.4 in May 2004. It bottomed at 32.9 in the midst of the recession in December 2008.

"Overall, this was a very strong report, and it suggests that the recovery in the U.S. manufacturing sector is gaining further traction," Millan Mulraine, an economist at TD Securities, wrote in a note to clients.

The ISM's report showed that inventories held by manufacturers' customers are still dropping, a sign of future gains as more sales will have to be filled through new production rather than existing stockpiles.

But economists also said that a more sustainable recovery will depend on increasing demand from consumers and businesses, not just replenishing inventories.

"Not until final demand is clearly firming are markets, or the Fed, likely to conclude that the economy is decisively beginning to lift off," Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.

Other measures of manufacturing around the world on Monday also showed growth. China's manufacturing sector expanded at its fastest rate in 20 months in December, according to a purchasing managers' survey. In Europe, a similar survey in the 16 countries that use the euro rose to a 21-month high and a manufacturing index for Britain rose to a 25-month high.

The stock market jumped on the first trading day of the year after the reports of stronger manufacturing activity around the world as well as a rise in oil prices. In midmorning trading, the Dow Jones industrial average rose 132.10, or 1.3 percent, to 10,560.15.


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