Manufacturing Growth Accelerates at Year's End

January 5, 2012

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U.S. manufacturing growth accelerated through the last month of 2011, growing at its fastest rate in six months and easing recessionary fears as the new year begins.

The factory sector in the United States continued to grow in December, following expansion in November. The latest pickup in business activity has improved the outlook for manufacturing at the start of 2012 and boosted prospects for the broader economy.

According to the Institute for Supply Management's (ISM) latest manufacturing Report on Business, U.S. manufacturing expanded for the 29th consecutive month in December, mirroring growth in the overall economy, which expanded for the 31st month straight.

The ISM purchasing managers' index (PMI), a key gauge of the factory sector, climbed to 53.9 in December, up from 52.7 in November and marking the highest reading since June 2011. Readings above 50 indicate overall growth for the industry. Although last month's PMI was below the 12-month average of 55.3, it corresponded to a projected 4.5 percent increase in real gross domestic product.

"Manufacturing is finishing out the year on a positive note, with new orders, production and employment all growing in December at faster rates than in November, and with an optimistic view toward the beginning of 2012 as reflected by the panel in this month's survey," Bradley J. Holcomb, chair of ISM's Manufacturing Business Survey Committee, said.

The ISM new orders index rose to 57.6 in December, up from 56.7 in November and marking the third consecutive month of demand growth. Meanwhile, the monthly production index climbed from 56.6 to 59.9 in December, marking the fourth consecutive month of growth. The employment index increased from 51.8 to 55.1, continuing a 27-month upward trend for the manufacturing labor market.

Nine of the 18 industries tracked by ISM reported growth last month: apparel, leather and allied products; printing and related support activities; textile mills; petroleum and coal products; machinery; food, beverage and tobacco products; computer and electronic products; primary metals; and paper products.

However, there was contraction in the other nine industries tracked: plastics and rubber products; nonmetallic mineral products; furniture and related products; chemical products; wood products; miscellaneous manufacturing; fabricated metal products; transportation equipment; and electrical equipment, appliances and components.

"The first report on manufacturing activity for the month of December should ease fears that the economy is slipping back into recession, as a recession would show up first in manufacturing activity, and this is not the case," Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), said in an analysis of the ISM report. "Business equipment investment, oil country goods and equipment, and motor vehicles should be the growth drivers in 2012."

Manufactured durable goods saw a strong uptick in late 2011, with new orders rising 3.8 percent to $207 billion in November, according to the U.S. Department of Commerce. Transportation equipment posted the largest gain, climbing 14.7 percent to $54.4 billion following two consecutive monthly declines. Meanwhile, new orders for non-defense capital goods climbed 8.1 percent to $78.7 billion.

"[E]conomists said it's important not to read too much into the end-of-the-year strength. Some of it may have been from businesses scrambling to make big-ticket purchases before losing a tax break at the end of the year to write off the cost of that investment more quickly," CNNMoney explains. "And while the fears of the U.S. falling into a new recession this year have retreated with recently improved readings on spending, employment and confidence, there are many headwinds still facing the U.S. economy, particularly from overseas."

Rising instability in international markets has elevated concerns about the sustainability of the global economic rebound. Unlike U.S. firms, Chinese manufacturers experienced a slowdown in late 2011, while euro zone manufacturing posted its fifth consecutive month of contraction in December. The European sovereign debt problem is particularly troubling, with the potential to disrupt U.S. growth.

"Manufacturing has been a bright spot for the economy. U.S. factory activity has been lifted by a surge in exports," the Associated Press reports. "But some economists are concerned that Europe's debt crisis will push that region into a recession, cutting demand in a market that accounts for about one-fifth of U.S. exports."

Earlier

Manufacturing Expands at Faster Rate in November

Manufacturing Growth Decelerates in October

What Manufacturers Expect in 2012

Resources

December 2012 Manufacturing ISM Report on Business Institute for Supply Management, Jan. 3, 2012

MAPI Analysis on ISM Index: Report 'Very Encouraging' by Daniel J. Meckstroth MAPI, Jan. 4, 2012

...Durable Goods Manufacturers' Shipments, Inventories and Orders — November 2011 U.S. Department of Commerce, Dec. 23, 2011

Manufacturing Activity, Employment on the Rise by Chris Isidore CNNMoney, Jan. 3, 2012

Durable Goods Order up, but Core Demand is Weak by Martin Crutsinger The Associated Press, Dec. 23, 2011

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