By Jeffry Bartash / MarketWatch
WASHINGTON – The U.S. manufacturing sector grew in December at its fastest pace in seven months, marking the 17th straight month of expansion, according to a closely followed index issued Monday.
The Institute for Supply Management said its index of factory activity rose to 57.0 percent in December from 56.6 percent the prior month – the highest level since last May. Readings over 50 percent indicate that more firms are growing than contracting.
The ISM index was expected to rise to 57.5 percent, according to economists surveyed by MarketWatch.
“The manufacturing sector remains quite solid and with orders strong, there is no reason to believe that will change anytime soon,” said Joel Naroff, president of Naroff Economic Advisors. “That bodes well for future overall economic growth.”
The gradual increase in U.S. manufacturing output corresponds with a worldwide trend. JPMorgan Chase on Monday said its global-manufacturing index reached a six-month high to finish out 2010, setting the stage for faster economic growth in 2011.
In a separate report, the Commerce Department said U.S. construction spending rose 0.4 percent in November.
The U.S. manufacturing sector got a boost last year after companies restocked inventories they allowed to draw down during the 2007-2009 recession. Many businesses also made purchases they had long put on hold.
The result: The ISM index hit a one-year high of 60.4 percent last April. The manufacturing sector is not growing quite as fast now, but it’s still in a rapid expansionary mode.
More important, history shows that U.S. gross domestic product tracks closely with the ISM index. The U.S. would likely grow more than 5 percent in 2011 if the ISM index averaged December’s 57.0 percent level over a full year, Ore noted. Such a level of growth – or anything close to it – would almost certainly slash the nation’s 9.8 percent unemployment rate.
Eleven of the 18 industries tracked by ISM expanded in December, according to the Tempe, Ariz.-based group.
Of particular note, the index for new orders jumped to 60.9 percent from 56.6 percent in the prior month. New orders are a strong indicator of future sales.
Production also increased. The index rose to 60.7 percent from 55.0 percent.
Much of the increase in demand appeared to be domestic, as the export index fell to 54.5 percent from 57.0 percent.
The ISM surveys about 350 purchasing managers, who buy raw materials for their companies, if business got better or worse. The managers are involved in all sorts of decisions, including hiring, the delivery of supplies and the management of inventories.