Plus: U.S. Factory Orders Make Gains, Job Losses Climb and Steel Imports Face Declines.

U.S. Manufacturing Ends 2009 with Continued Growth
For the fifth straight month, the manufacturing sector has shown signs of growth in the United States. The Institute for Supply Chain Management (ISM) last week reported that its purchasing managers index (PMI) rose to 55.9 in December — its highest rating since April 2006. The latest PMI represents an increase of 2.3 percentage points over November’s reading of 53.6 percent, indicating continued recovery in the sector at a faster rate of growth. Both new orders and production were above 60 percent.

“The sector may be benefiting from an excessive destocking cycle as indicated by the recent performance of the customers’ inventories index. Customers’ inventories have been ‘too low’ for nine consecutive months, and this month’s index is the lowest reading since the inception of the index in January 1997,” Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said. “Overall, the recovery in manufacturing is continuing, but there are still some industries mired in the downturn as evidenced by seven industries still in decline.”

In a separate report last week, the U.S. Department of Commerce said that orders to American factories posted a big gain in November, reflecting increased demand in several industries, from steel and industrial machinery to chemicals and computers. The Commerce Department said on Tuesday that orders rose 1.1 percent in November, following a 0.8 percent October increase. According to the Associated Press, “the advance was double what had been expected and provided further evidence that manufacturers were beginning to pull out of their slump.” Analysts polled by Reuters had expected a much slimmer 0.5 percent increase in orders.

Shipments, up five of the last six months, rose 1 percent, according to the government data. Inventories grew for the second month in a row.

The international outlook appears to be similar. HSBC’s PMI for India reached its highest level since May, and the index for China marked a 20-month high, the Wall Street Journal reports (subscription required).

Still, the economy has a long way to go. While technically in the “improvement” stage at 52 percent in December, employment always lags behind other indices. In other words, hiring has to make significant gains before the recovery can achieve long-term momentum.

Unemployment Edges Up in December
Despite a promising boost in the job market in November, job losses rose in December, indicating that many businesses are still reluctant to resume hiring amid a fragile economic climate.

Businesses in the U.S. shed 85,000 jobs in December, with the unemployment rate remaining unchanged at 10 percent, according to a report from the U.S. Department of Labor on Friday. The construction industry had the highest loss rate, declining by 53,000 jobs, while manufacturing decreased by 27,000 jobs.

“The unemployment rate was unchanged at 10 percent, but economists suspect this is only because hundreds of thousands of frustrated workers stopped looking for jobs,” the Washington Post reports.

According to the Labor Department, since the recession began in December 2007, the number of unemployed Americans has nearly doubled from 7.7 million to 15.3 million, while the unemployment rate has climbed from 5 percent to 10 percent.

“Most economists assume the unemployment rate — which held steady at 10 percent in December — will worsen in coming months. The nation would then confront the highest jobless rate in a generation…” the New York Times explains. “The government’s monthly jobs report, while always important, now stands as the crucial indicator of economic health.”

The mounting instability in the job market has intensified pressure to address unemployment. On Friday, President Obama announced the distribution of $2.3 billion in tax credits to fund clean energy manufacturing projects in 43 states, hoping the initiative will create “tens of thousands” of high-quality clean-energy jobs.

(Check back next week for IMT’s 2010 employment outlook.)

EPA Announces Stricter Health Standards for Smog
The U.S. Environmental Protection Agency (EPA) last week proposed what the agency calls “the strictest health standards to date for smog,” between 0.060 and 0.070 parts per million (ppm) measured over eight hours.

The new standards would replace those established by the previous administration in 2008, which set the primary standard for smog at 0.075 ppm for eight hours. The new regulations “would bring substantial health benefits to millions of Americans while imposing large costs on industry and local governments,” the New York Times reports.

The new limits the EPA is considering could more than double the number of counties in violation. “More than 300 counties — mainly in southern California, the Northeast and Gulf Coast — already violate the current, looser requirements adopted two years ago by the Bush administration and will find it even harder to reduce smog-forming pollution enough to comply with the law,” according to the Associated Press.

“Costs of compliance could be in the tens of billions of dollars, but the government said the rules would save other billions — as well as lives — in the long run,” the AP adds.

The Washington Post reports that the new rules must undergo 60 days of public comment before becoming final.

In response to the proposal, the National Association of Manufacturers cited EPA data showing a 25 percent decline in smog concentrations nationwide from 1980 to 2008. (Source: The Wall Street Journal, subscription required).

Steel Imports Decline
Permit applications for steel imports came to a total of 1.33 million net tons in December, a 9 percent decrease from the 1.45 million permit tons in November, according to a report from the American Iron and Steel Institute (AISI) last week.

Steel imports have experienced steep declines over the past year. The AISI report found that steel imports for all of 2009 came in at a total of 16 million net tons, and finished-steel imports totaled 14.1 million net tons, down 50 percent and 46 percent, respectively, from the 2008 figures. This is the lowest finished-steel import tonnage since 1991, though its market share of 21 percent has remained relatively steady and in line with seven of the past 10 years.

Several key steel import categories, including bar and tubular products, declined by more than 50 percent in 2009, while sheet product dropped by less than 40 percent. According to the report, the most significant factor in the current state of steel imports is the risk of oversupply to the U.S. market from Asian firms.

“As the United States begins what promises to be a long and very slow road of economic recovery, it is critical — not only for steel, but for America’s manufacturing base in general — that we preserve and enhance our vital laws against unfair trade and that there be zero tolerance of dumped and subsidized imports,” Thomas J. Gibson, president and CEO of AISI, said in a commentary on the findings.

Last Thursday, U.S. Steel filed a petition with other parties seeking remedial duties on certain imports in response to alleged steel-dumping tactics from Chinese companies. The petition came a week after the U.S. imposed stricter new tariffs on imported Chinese steel products.