January 3, 2012 / 3:23 PM / 7 years ago

Instant View: Factory sector strengthens in December

(Reuters) - Manufacturing activity picked up nationwide in December, with new orders and employment improving, according to a national survey of purchasing managers.

CONSTRUCTION SPENDING:

U.S. construction spending surged to a near 1-1/2 year high in November as investment in public and private projects rose solidly, cementing expectations of strong economic growth in the fourth quarter.

KEY POINTS: * The Institute for Supply Management (ISM) said its index of national factory activity rose to 53.9 from 52.7 the month before. The reading topped expectations of 53.2, according to a Reuters poll of economists. * A reading above 50 indicates expansion. * New orders, which economists consider a leading indicator of future activity in the sector, rose to 57.6 from 56.7. The employment component also jumped to 55.1 from 51.8.

COMMENTS:

BRADLEY J. HOLCOMB, CHAIR, ISM MANUFACTURING BUSINESS SURVEY

COMMITTEE:

“The December PMI rose nicely to 53.9; with new orders, production and employment all growing from November. Inventories at 47.1. Customer inventories fell back and prices decreased for the third consecutive month. So overall 2011 it’s finishing on an upswing with a lot of indicators pointing positive.

“Many industries showed increases in new orders. Comments showed the auto industry to be very strong and continuing to be strong. Even miscellaneous manufacturing was strong so in general the strength is pretty broad-based.

“The very nice increase of 3.3 percent to 55.1 on the employment index was consistent with our recent semi-annual report and portends well for 2012 for the next few months continuing to grow. Employment will fit right in there. Manufacturers will hire, as needed, to continue this growth trend.”

As to how manufacturing fared during 2011: “We did see a number of ups and downs. It’s rebounding towards the end of the year. On the whole it was a solid year. It was a bit frustrating along the way, but it ended nicely.

“Manufacturing is well positioned for continued growth into 2012.

“Momentum is solid. I wouldn’t say strong, but solid. If I couple this report with the December semi-annual report there is optimism for 2012 and this December finish positions us well for that.”

WASHINGTON:

“We were in a risk-on environment to begin with this morning and this adds to that story. I expect the euro, the euro/dollar especially, to stay in a tight range for the day. I think we feel a little more relief over (the U.S. economy) the last month or two months, but overall there’s still that nagging in the back of your mind. Moving forward the European debt crisis has not gone away. It’s the global economy, negative economic events overseas eventually trickle back to the U.S. At least for the first two quarters of this year, until we see a long stream of positive data, people are going to be wary of U.S. growth.”

ANDREW WILKINSON, CHIEF ECONOMIC STRATEGIST, MILLER TABAK & CO.,

NEW YORK:

“The report is another good surprise for the new year. It was encouraging to see the jump in new orders and employment. From a trade perspective it is also encouraging to see that export orders expanded from the last month. Data from the first report of the year is encouraging and it shows further expansion that conflicts with the clouds hanging over the euro zone economy.”

MANAGEMENT, TULSA, OKLAHOMA:

“The big news is that there’s no negative news coming out of Europe, so investors can focus on the improving economy and our improving economic data. That we continue to make progress towards a full recovery is more important than any specific data. People are very optimistic that 2012 will prove to be a big year for the recovery and the stock market.

“Construction spending is key to show that confidence in the economy can be sustained going forward, and that it isn’t just a one-month issue. This is one more piece of the puzzle to show that the economy will turn around.”

CARY LEAHEY, MANAGING DIRECTOR AND SENIOR ECONOMIST, DECISION

ECONOMICS, NEW YORK:

“It’s a pretty good report. Decent gains in orders and production. After a number above 50 in the Chinese number and an improvement in the UK and European figures, these are a nice start for the new year. The market will take this as another confirmation of a decent employment report this Friday. The stock market will like this. The fly in the ointment is that we have had waves of enthusiasm about the near-term outlook but that did not last for more than three or four months so the market does not believe the good news about the fourth quarter will carry over until 2012.”

TOM PORCELLI, CHIEF US ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

“It’s a pretty decent report overall. Underlying details are also fairly solid. I think it’s important-this is a not-too-hot, not-too-cold report. We’re not roaring ahead here but it’s also not collapsing. That’s consistent with our overall view of the economy in 2012.

“The one thing that obviously is certainly encouraging is to see the employment index rise. That’s certainly a positive development. The new orders index, this is a multi-month high. That’s definitely an encouraging development. This is the best we’ve seen since April in new orders. What that means for manufacturing is that yeah manufacturing activity should be sustained because of these new orders.”

MARKET REACTION:

STOCKS: U.S. stock indexes added slightly to gains BONDS: U.S. bond prices extended losses slightly FOREX: The dollar was modestly lower against the euro

Americas Economics and Markets Desk; +1-646 223-6300

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