Manufacturing Grows at Faster Pace in January
Following strong growth in December, U.S. manufacturing continued to expand in January, growing at its fastest pace in more than six years and marking a promising start to 2011.
Although the United States manufacturing sector’s growth rate slowed in November 2010, business activity picked up in December and continued to accelerate through January, strengthening the outlook for the manufacturing recovery in 2011. With rising orders, production and pricing, factories may soon improve their hiring plans as well.
According to the Institute for Supply Management’s (ISM) latest manufacturing Report on Business, released yesterday, U.S. manufacturing expanded for the 18th consecutive month in January, reflecting continued growth in the overall economy,
“The continuing strong performance is highlighted as January is also the sixth consecutive month of month-over-month growth in the sector,” Norbert J. Ore, chair of ISM’s Manufacturing Business Survey Committee, said. “New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004. Global demand is driving commodity prices higher, particularly for energy, metals and chemicals.”
The ISM’s purchasing managers’ index (PMI), a key monthly gauge of the factory sector, rose to 60.8 in January, the highest level since May 2004 and up from December’s revised reading of 58.5. Readings above 50 represent growth. The 2.3-point gain last month indicates that manufacturing is expanding at an accelerating monthly rate. January’s PMI was above the 12-month average of 57.5.
The findings show that manufacturing continues to be at the forefront of the economic recovery in the U.S., outperforming other major sectors. The latest PMI reading exceeded expectations, as economists surveyed by MarketWatch had forecast the index to remain unchanged at 58.5 in January.
The ISM’s new orders index also saw a major boost in January, climbing from 62 in December to 67.8. Meanwhile, production rose from 63 to 63.5 and prices surged from 72.5 to 81.5. The largest gain was in the backlog of orders, which rose from 47 to 58, while supplier deliveries increased from 56.7 to 58.6, and exports and imports jumped by 7.5 points and 4.5 points, respectively.
The January data “clearly shows that momentum is again building for this sector, after somewhat slower growth in the fall due to the normal inventory swing, and that growth is being driven by improving demand,” Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, said in an analysis of the ISM report. “New orders were strong, driven by exports, by technology and by consumer purchases of autos, computers, mobile phones and other equipment. Capital equipment sales are building, especially in areas like mining and drilling equipment, industrial machinery and aerospace.”
Fourteen of the 18 industries tracked by ISM reported growth last month: petroleum and coal products; primary metals; apparel and leather; wood products; computer and electronic products; transportation equipment; fabricated metal products; machinery; paper products; miscellaneous manufacturing; chemical products; furniture and related products; food, beverage and tobacco products; and electrical equipment, appliances and components.
Despite the strong gains last month, concerns are mounting over potential problems from the rapidly rising prices index, as this “could foreshadow inflation as a threat to the economy down the road,” according to CNNMoney.com.
“Commodity prices are up across the board. In fact, not a single commodity reported being down in price,” economics blog Seeking Alpha explains. “If there are any concerns about this month’s report, it is prices. Historically speaking, from here the manufacturing price index, at 81.5 could run up another 10-15 percentage points, although the air gets pretty thin above 90.”
Concerns remain over possible inflation further down the line are balanced by promising signs in employment conditions. The ISM’s employment index rose from 58.9 in December to 61.7 in January, signaling better hiring prospects. However, the gain is unlikely to produce any major increase in manufacturing jobs in the short-term.
“Employment prospects are improving, but will be limited by the continuing productivity surge. Construction is still lagging and limits demand for building materials and puts a damper on employment prospects,” Duesterberg added. “Overall, this report suggests that manufacturing will continue to lead the recovery at least through mid-year.”
