US manufacturing activity jumps in December

US manufacturing activity jumps in December

US manufacturing
The Institute for Supply Management's closely-watched Purchasing Managers Index for US manufacturing defied expectations by increasing 1.5 points to 60.2 per cent.

WASHINGTON: The manufacturing sector that is central to the US economy continued to expand at a strong pace in the final month of 2017, according to an industry survey released on Wednesday (Jan 3).

A surge in new orders and strong manufacturing output pushed the Institute for Supply Management's (ISM) purchasing managers index up 1.5 points to 59.7 per cent, its second highest level in seven years after hitting a peak in September.

The strength in nearly every industry created "a really strong report" meaning the sector is now in its 16th consecutive month of expansion, explained Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee.

The production index gained nearly two points to 65.8 per cent, while new orders surged 5.4 points to 69.4 per cent, the strongest since January 2004 and marking seven straight months above 60. Any reading above 50 indicates growth in the sector.

"We're continuing on the same trajectory which is growing," Fiore told reporters. "This is stronger than I thought that we would be for December."

The one disappointment was the employment index, which fell nearly three points to a still-strong 57 per cent. But that could be in part attributable to continuing reports from companies finding it hard to fill job openings, according to Fiore.

ISM's semi-annual forecast released last month showed 65 per cent of firms surveyed had difficulty hiring new employees and 44 per cent increased starting pay to attract new workers.

Even so, 11 of the 18 industries covered reported an increase in hiring, and only two reported a decline.

Another area to watch is prices, given the prospects for earnings and inflation, and that index jumped 3.5 points to 69 per cent, which means it has been rising for 22 months as 17 of 18 industries reported increases.

Manufacturers expected to see six months of price increases for some raw materials in the wake of the late summer hurricanes - especially Hurricane Harvey's hit to the key chemical and oil production facilities in Houston.

Fiore noted that companies are passing on input prices to their customers, which means they can expand their margins and "the whole economy grows."

RDQ Economics said the recently approved tax cut could be another boon for the manufacturing sector.

"Our belief is that investment spending will be stimulated in 2018 by the cut in corporate taxes and this will be a strong positive for manufacturing," RDQ said in a research note, adding that the jump in new orders "is certainly consistent with this thesis."

Source: AFP/ec/de