US factory activity surges to two-year high in December

PUBLISHED : Wednesday, 04 January, 2017, 2:13am
UPDATED : Wednesday, 04 January, 2017, 8:18am

Manufacturing activity grew at the fastest pace in two years last month as both new orders and production picked up sharply - a signal that the energy sector may be poised to drive a rebound for US factories this year.

An index of factory activity rose to 54.7 from 53.2 in November, the Institute for Supply Management said Tuesday. A reading above 50 means the sector is expanding, while below indicates contraction. Economists expected a smaller increase to 53.7.

The gain marks the fourth straight month that the measure has shown a faster expansion.

Manufacturers have been bolstered by a recovering oil sector, with rising crude prices boosting energy investment, and a dollar that had stabilised until a recent rally, making US goods more affordable abroad. The greenback, however, has strengthened in recent months against a basket of currencies, fueling concerns of renewed troubles for the nation’s factories.

In December, the production index increased to 60.3 from 56. And a measure of new orders, a barometer of future output, jumped from 53 to 60.2, the highest level in two years. What’s more, the gap between new orders and inventory levels reached a three-year high.

That suggests “manufacturing activity will continue to expand over the coming months,” Contingent Macro Research wrote in a note to clients.

The employment index increased modestly to 53.1 from 52.3. That could indicate factory payrolls are at least stabilising after steady layoffs last year.

Of 18 sectors, 11 reported growth, including oil and coal products, primary and fabricated metals, machinery, computers and apparel. Those contracting included furniture, textiles, transportation equipment, and plastic and rubber products.