U.S. Manufacturing Grows At Fastest Pace In 2½ Years

Mon, 12/02/2013 - 11:11am
Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) -- U.S. manufacturing grew in November at the fastest pace in 2½ years as factories ramped up production, stepped up hiring and received orders at a healthy clip.

The Institute for Supply Management said Monday that its index of manufacturing activity rose to 57.3. That was up from 56.4 in October and was the highest since April 2011. A reading above 50 signals growth.

One component of the index, a measure of hiring, rose to its highest level in nearly 18 months. And a gauge of export orders reached its highest level in nearly two years. Overseas demand is benefiting from modest recoveries in Europe, Japan and China.

Manufacturing activity has now expanded for six straight months after hitting a rough patch in the spring. The steady gains suggest that growth is remaining healthy in the current October-December quarter.

Still, the encouraging figures in the ISM's report conflict with weaker recent data on factory activity, making it difficult to discern a clear trend.

The ISM is a trade group of purchasing managers.

"We continue to believe that this indicator is overstating the health of the broader economy," said Joshua Shapiro, chief U.S. economist at MFR Inc.

For example, businesses cut back on orders for long-lasting factory goods in October, according to a government report Wednesday. Orders for durable goods, which are meant to last three years, fell 2 percent.

A fall in aircraft demand drove the decline. But companies also spent less on machinery, computers, and metal parts. The weak showing suggests that businesses may have been reluctant to order more goods during the 16-day partial government shutdown during October.

The ISM's index doesn't adequately measure smaller manufacturers, according to Ian Shepherdson, an economist at Pantheon Macroeconomics. Larger companies are likely benefiting more from recoveries overseas.

Separately, factory output rose for the third straight month in October, according to the Federal Reserve, driven higher by greater production of primary metals and furniture.

The mixed picture comes as the economy is thought to be slowing in the October-December quarter to an annual rate of 2 percent or less. That would be down from a 2.8 percent annual pace in the July-September quarter.

Much of the third quarter's growth was due to companies rebuilding their stockpiles. The economy is unlikely to benefit from a similar trend in the current quarter.

Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), weighed in on the recent ISM numbers: “The November survey from the Institute for Supply Management (ISM) suggests that U.S. manufacturing is set for a positive finish to a mixed year,” said . “The overall index increased a significant 0.9 percentage points to a strong 57.3 percent, nearly 4 percentage points above its 12-month average and its highest level since April 2011.  Key components indices such as new orders, the backlog of orders, and production highlight positive momentum.

“While encouraging, these recent ISM data have been notably stronger than other manufacturing-related indicators and have to be interpreted against the backdrop of a challenging domestic and world business climate. ISM respondent comments for November are telling in this regard.  Some survey respondents noted the strong order rate and good business climate.  Others noted that federal policy difficulties have been creating business caution and uncertainty. Essentially flat manufacturing output growth in the second quarter of this year and only 1 percent growth in the third quarter testify to the real impact of uncertainty.

A cornucopia of positive and negative forces will continue to impact the highly globalized U.S. manufacturing sector going into 2014. Much improved global financial and economic stability is the key positive for U.S. factories.  But the halting and tepid nature of the recovery in such critical areas as the Eurozone and large emerging markets unfortunately means that global improvement is not doing as much as it should for U.S. manufacturing growth and job creation.  Further, U.S. federal policy difficulties continue to suppress capital spending, a key demand driver for manufacturing.  Modest growth acceleration with a mix of upside and downside risks best describes the outlook for U.S. manufacturing as it ends a challenging year.” 



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