U.S. Manufacturing Sees Acceleration

Fifth consecutive month of expansion

Showing its strongest pace of activity since April 2006, manufacturing climbed to 55.9% in December from 53.6% in November, according to the purchasing managers index from The Institute for Supply Management. It was the fifth consecutive month of expansion.

"The U.S. manufacturing sector concluded 2009 on something of a high note," said Cliff Waldman, Economist for the Manufacturers Alliance/MAPI. "New orders and production growth both strengthened impressively. Disappointingly however, the backlog of orders, an indicator of the short-term demands on production, grew at a slower rate and now sits right at 50%, the dividing line between growth and contraction.

"The notably slower contraction of inventories in December, in tandem with weaker growth in the backlog of orders, does continue to highlight persistent concerns about the durability of the manufacturing recovery, specifically as to what extent the inventory turn along with continued support from fiscal policy is powering renewed output growth," he added. "The U.S. factory sector has clearly ended its deep slump and is unlikely to fall back into contraction. But there are demand difficulties in the business and household sectors resulting from high unemployment, excess capacity, an uneven global recovery, and shaky consumer and business confidence. These issues suggest that while 2010 will be a recovery year for the U.S. factory sector it will likely be muted and insufficient to soak up historic excess capacity."

The ISM report showed nine industry sectors growing, including transportation, computers, apparel and foods. Seven sectors contracted including wood, plastics and chemicals.

In the survey's sub-indexes, new orders rose more that five percentage points to 65.5% and production increased nearly two points to 61.8%.

The employment sub-index meanwhile increased to 52% from 50.8%, suggesting the manufacturing sector is adding workers at a faster pace.

"Overall, the December survey points toward sturdy growth in manufacturing industrial production, which is forecast to have increased 1.2% at an annual rate in the fourth quarter," said Ryan Sweet at Moody's Economy.com.

Copyright Agence France-Presse, 2010

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