U.S. Manufacturing Expands Slightly In December

Wed, 01/02/2013 - 11:29am
Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) -- U.S. manufacturing grew slightly last month and factory hiring increased. The modest gain suggests the economy entered the new year with some momentum.

The Institute for Supply Management said Wednesday that its index of manufacturing activity rose in December to 50.7. That's up from a reading of 49.5 in the November, which was the lowest reading since July 2009, one month after the recession ended.

A reading above 50 indicates growth, while a reading below signals contraction. The ISM is a trade group of purchasing managers.

A measure of employment increased last month to 52.7. That's up from 48.4 in November, which was the first time the employment gauge fell below 50 in three years.

Factories have cut jobs in three of the four months through November, according to government data. The jump in employment in the ISM survey suggests manufacturers may have stepped up hiring last month.

The Labor Department releases the December jobs report on Friday.

Still, a gauge of new orders was unchanged and production grew more slowly, the survey found. Manufacturers also cut back on stockpiles, a sign of concern about future demand.

"The trend in manufacturing remains weak," Jim O'Sullivan, an economist at High Frequency Economics, said in a note to clients.

The closely watched manufacturing survey was completed before Congress reached a deal to avoid the "fiscal cliff."

The last-minute deal passed Tuesday averts widespread tax increases and delays deep spending cuts that had threatened to push the country back into recession. Still, most Americans will see some increase in taxes this year, which will likely slow consumer spending.

Stocks rose immediately after the market opened in response to the deal. The Dow Jones industrial average jumped 233 points in morning trading.

A gauge of export orders rose above 50 for the first time in six months, according to the ISM survey. That's a hopeful sign that overseas economies are improving, raising demand for U.S. goods.

A survey in China on Monday found manufacturing activity in that country expanded for the third straight month. That adds to evidence that its economy is improving after a slowdown last year.

Growth in the U.S. economy is being driven by other sectors, such as housing. A government report showed that construction firms spent more on home building in November.

Overall construction spending slipped 0.3 percent because of a sharp drop in federal government projects. Spending on commercial buildings, such as office buildings and shopping malls, also fell.

There have been some positive signs for factory output. In November, companies substantially increased their orders for a category of large equipment that reflects their investment plans. That followed a big increase in the same category in October.

The economy grew at a 3.1 percent annual rate in the July-September quarter, much better than the 1.3 percent pace in the April-June quarter. But economists expect growth slowed in the final three months of last year, partly because of the uncertainties surrounding the fiscal cliff, to below a 2 percent pace.

Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), has weighed in with some comments regarding the latest ISM numbers:

“The Institute for Supply Management (ISM) Index was 50.7 in December, up from 49.5 in November. Since an index level of 50 is the dividing line between growth and decline, the report on December manufacturing suggests that the sector’s activity fell in November but rose in December. Unfortunately, the up-and-down pattern in manufacturing has been a characteristic of manufacturing activity since May 2012. It is disappointing that the orders index posted very little growth in both November and December and that order backlogs continues to decline. Inventory levels are being drawn down sharply following an unwanted accumulation in the third quarter.

“Manufacturing growth was all front-loaded in 2012. Because production overshot demand early in the year, the sector was trapped in a long period of see-saw growth around a declining trend.  Because of the first quarter surge, manufacturing industrial production will actually post 4 percent growth in physical volume in 2012, which is faster than the 2.1 percent growth in inflation-adjusted GDP.

“We do not expect another manufacturing production surge in first quarter of 2013. We do see strong growth in the housing-related industries, aerospace, and automobile production in 2013 but there are many other industries within manufacturing which should see little, if any, growth. MAPI forecasts manufacturing industrial production will increase only 2 percent in 2013. Although the growth will be less in 2013 than in 2014, manufacturers may feel better with a less volatile quarter-to-quarter pattern.”



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