Measure Of U.S. Manufacturing Jumps

Fri, 02/01/2013 - 12:19pm
Daniel Wagner, AP Business Writer

WASHINGTON (AP) -- U.S. manufacturing activity grew at a faster pace in January behind an increase in new orders and more hiring at factories.

The Institute for Supply Management said Friday that its index of manufacturing activity jumped to 53.1 in January from 50.2 in December, the trade group said Friday. It was the highest reading since April, when the index hit 54.1.

Any reading above 50 indicates expansion.

The second straight monthly increase in the index showed manufacturing is starting to grow again after struggling through most of 2012. Increased uncertainty about tax increases and government spending cuts led many companies to cut orders for machinery and equipment earlier this year. And a weaker global economy dampened demand for U.S. exports.

The January growth in manufacturing was also encouraging because it showed that factories saw greater demand even as consumers started to pay higher Social Security taxes. That left them with less take-home pay, which could hurt consumer spending.

And the survey came hours after the Labor Department reported that the job market held steady at the end of last year even as economic growth stalled. The Labor Department Friday said employers added 157,000 jobs in January and job growth was stronger than previously thought in December and November.

Manufactures added 4,000 jobs last month, the fourth straight monthly increase.

"There's a fair bit of optimism here to start the year," said Dan Greenhaus, chief global strategist with BTIG LLC, a trading firm based in New York. He said the data show that the economy "is resilient to the debate in Washington" about possible tax increases and spending cuts.

Greenhaus said the solid manufacturing gains, especially in new orders and employment, suggest that "the larger story remains intact, of a moderate, ongoing recovery."

The ISM report showed that 13 of the 18 industries surveyed grew last month. They included manufacturers of plastics and rubber, textiles, furniture, printing, and apparel. Four industries reporting contraction: minerals, computers and electronics, wood and chemicals.

The survey's new orders index returned to growth, rising to 53.3 in January from 49.7 in December. Companies reported adding to their inventories in January after two months of declines, a sign that factories are preparing to boost production.

Slower growth in stockpiles was a key reason the economy shrank at an annual rate of 0.1 percent in the October-December quarter, the first contraction in 3 ½ years. Deep cuts in defense spending and fewer exports also contributed to the decline.

Most analysts predict that the economy will grow again in the January-March quarter, though likely at a lackluster annual rate of around 1 percent. They expect the economy to expand about 2 percent for the full year.

Still, a big question is how consumers respond to the increase in Social Security taxes. A person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less. Taxes rose after a 2 percent cut, in place for two years, expired Jan. 1.

Analysts expect the Social Security tax increase to shave about a half-point off economic growth in 2013, since consumers drive about 70 percent of economic activity.

The ISM is a trade group of supply management professionals. Its index is based on a monthly survey of manufacturing executives.

Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), had the following to say in regards to the ISM report: “The Institute for Supply Management (ISM) Index was 53.1 in January 2013, up quite sharply from 50.2 in December. An index level of 50 is the dividing line between growth and decline. The January report was very positive, showing orders, production, and employment substantially improved from December 2012.

“A strong ISM report, combined with the employment numbers for January from the Bureau of Labor Statistics showing a modest 4,000 additional manufacturing jobs, is a good start to the year,” he added. “Despite the political uncertainty over the debt ceiling, sequester, and federal government shutdown deadlines all coming up in the first half of this year, industrial activity continues to grow. All households saw a tax increase in January with the expiration of the 2 percent payroll tax cut, and high income taxpayers faced higher marginal rates and new health care taxes. Despite the headwinds, the strong improvement in housing starts, solid growth in motor vehicle production and widespread modest gains across many industries are driving manufacturing activity.

“We believe that higher taxes and sluggish job and wage growth will constrain the economy to a relatively slow pace of growth in 2013” Meckstroth concluded. “Manufacturing industrial production seems to be coming out of a lull and is forecast to increase 2 percent in 2013 compared to 2012.”


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