Manufacturing expands at fastest pace in six months

January 3, 2012

Manufacturing in the U.S. grew at the fastest paces in six months, as data from December pointed to gains in production and orders that hint that the industry remained at the forefront of expansion entering 2012, Bloomberg reported.

According to the news outlet, the Institute for Supply Management's factory index climbed to 53.9 in December, marking a rise from the 52.7 that was recorded for the previous month. A reading of 50 or higher signifies expansion in the industry.

The December number came in at a higher level than the initial projections from a group of economists surveyed by Bloomberg, as they predicted the index would rise to 53.5.

The news outlet reported that increasing demand for autos, gains in holiday sales and lean inventories may set the stage for further strength in the industry.

"This reinforces the upward trend we’ve been seeing in manufacturing data," Eric Green, chief market economist at TD Securities Inc. in New York, told Bloomberg prior to the release of the data. "Stronger domestic demand, decent export demand and better inventory demand" are fueling the industry.

Orders and production increased at the fastest paces since April, according to the ISM data. Declines in inventories at manufacturers and factory customers could point to further gains in production in the coming months, the news source reported.

The report also showed that the overall economy grew for the 31st consecutive month and expansion in the manufacturing sector for the 29th consecutive month.

"The past relationship between the PMI and the overall economy indicates that the average PMI for January through December (55.3 percent) corresponds to a 4.5 percent increase in real gross domestic product (GDP)," said Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. In addition, if the PMI for December (53.9 percent) is annualized, it corresponds to a 4 percent increase in real GDP annually."

Reuters reported that the manufacturing sector is continuing its expansion at a consistent pace, as the U.S. economy is not roaring ahead, but it's still making progress. The report from the ISM indicated that manufacturing in the U.S. is doing better than factory output elsewhere in the world.

New orders, which many economists consider a leading indicator of future activity in the sector, rose to 57.6 from 56.7, while the employment component jumped to 55.1 from 51.8, according to the news outlet.