Manufacturing Probably Expanded in December at Fastest Pace in Six Months

Manufacturing in the U.S. probably expanded in December at the fastest pace in six months, remaining at the forefront of the expansion entering 2012, economists said before a report today.

The Institute for Supply Management’s factory index rose to 53.4 last month from 52.7 in November, according to the median projection (NAPMPMI) of 63 economists surveyed by Bloomberg News. Fifty is the dividing line between growth and contraction. Construction spending increased for a fourth straight month in November, another report may show.

Increasing demand for autos, gains in holiday sales and lean inventories may pave the way for further strength in the industry that accounts for about 12 percent of the economy. At the same time, faltering growth in Europe due to the debt crisis poses a risk to the U.S. expansion.

“Manufacturing is still progressing at a nice pace,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “I expect exports to continue to grow, but modestly, with economic repercussions out of Europe as a key headwind.”

The Tempe, Arizona-based group’s data are due at 10 a.m. Estimates for the manufacturing index ranged from 50 to 56. A reading above 42.5 generally indicates an expansion in the overall economy, the group has said.

In China and India, manufacturing expanded last month, indicating Asia’s fastest-growing major economies have so far withstood the fallout from Europe’s sovereign debt crisis.

Fastest Pace

India’s manufacturing grew at the fastest pace in six months, stoking inflationary pressure, and a Chinese manufacturing gauge rose by more than economists expected, suggesting that a slowdown in the world’s second-biggest economy may be stabilizing. In the euro area, output fell for a fifth month though the rate of decline eased slightly from November.

The U.S. economy “has been expanding moderately, notwithstanding some apparent slowing in global growth,” the Federal Reserve said Dec. 13 after its last monetary policy meeting of the year.

Signs the U.S. will weather a possible recession in Europe have helped drive up shares of equipment makers. The Standard & Poor’s Machinery Index climbed 20 percent in the fourth quarter compared with an 11 percent gain in the broader S&P 500.

The national ISM report follows data last week showing business activity in December was little changed near a seven- month high. The Institute for Supply Management-Chicago Inc. said its business barometer (CHPMINDX) decreased to 62.5 from 62.6 in November as employment strengthened.

Tax Credit

An end-of-year deadline to qualify for a larger government tax credit may have contributed to an increase in business demand for equipment. A tax compromise allowed companies to depreciate 100 percent of investment in capital outlays in 2011, dropping down to 50 percent this year.

A reviving auto industry is also boosting the U.S. economy. Light-vehicle sales ran at a seasonally adjusted annual rate of 13.6 million in November, the fastest since August 2009, according to Autodata Corp.

General Motors Co. (GM), the largest U.S. carmaker, posted November sales growth of 7 percent versus a year earlier, partly due to Americans replacing older vehicles.

“It’s the underlying replacement demand and economy, as well as the great new products, that are really driving it,” Don Johnson, GM’s vice president for U.S. sales, said on a conference call last month.

Namesake Brand

Ford Motor Co. last week said its namesake brand exceeded 2 million U.S. sales for the first year since 2007, led by gains for models such as the Fiesta small car and revamped Explorer sport-utility vehicle.

Growth in Asia and emerging markets is helping sustain orders for U.S.-produced goods while demand from Europe stumbles. Grand Rapids, Michigan-based Steelcase Inc. (SCS), which designs and makes products for offices, is seeing room for expansion in India and China, while sales are uneven in Europe.

“We saw revenue growth in some countries” in Europe in the most recent quarter, “while others were down,” James Hackett, president and chief executive officer of the Grand Rapids-based company, said on a Dec. 22 conference call. “Our commitment to Asia continues to pay off.”

September and October were the best months for U.S. exports (USTBEXP) on record, according to figures from the Commerce Department.

Meantime, housing is showing signs of stabilizing. Construction spending (CNSTTMOM) increased 0.4 percent in November, according to the median projection in the Bloomberg survey. It rose 0.8 percent in October.

                   Bloomberg Survey

================================================================
                               ISM Construct
                              Manu Spending
                             Index     MOM%
================================================================

Date of Release              01/03    01/03
Observation Period            Dec.     Nov.
----------------------------------------------------------------
Median                        53.4     0.4%
Average                       53.3     0.4%
High Forecast                 56.0     1.4%
Low Forecast                  50.0    -0.6%
Number of Participants          63       37
Previous                      52.7     0.8%
----------------------------------------------------------------
4CAST Ltd.                    54.5     1.2%
ABN Amro Inc.                 50.0     ---
Action Economics              53.0     0.6%
Aletti Gestielle              53.5     ---
Ameriprise Financial Inc      53.5     0.5%
Bantleon Bank AG              53.4     ---
Barclays Capital              53.5     0.4%
Bayerische Landesbank         53.7     ---
BMO Capital Markets           53.0     0.2%
BNP Paribas                   53.5     0.0%
Briefing.com                  53.2     0.2%
Capital Economics             54.0     0.5%
CIBC World Markets            53.0     ---
Citi                          53.0     0.2%
ClearView Economics           53.5     0.5%
Commerzbank AG                53.5     ---
Credit Agricole CIB           54.0     ---
Credit Suisse                 52.5     ---
Danske Bank                   52.7     ---
DekaBank                      53.5     0.5%
Desjardins Group              54.0     0.8%
Deutsche Bank Securities      54.0     0.4%
Deutsche Postbank AG          54.0     ---
Exane                         53.1     ---
First Trust Advisors          53.0     0.3%
Helaba                        52.0     ---
HSBC Markets                  53.5     ---
Hugh Johnson Advisors         53.0     ---
IDEAglobal                    54.0     0.5%
IHS Global Insight            54.0     0.0%
Informa Global Markets        56.0     0.2%
ING Financial Markets         53.2     0.3%
Insight Economics             53.5     0.5%
Intesa-SanPaulo               53.5     0.2%
J.P. Morgan Chase             53.0     0.5%
Janney Montgomery Scott L     53.5     0.4%
Jefferies & Co.               53.0     0.4%
Landesbank Berlin             53.5     0.8%
Landesbank BW                 53.8     ---
Mizuho Securities             53.0     0.4%
Moody’s Analytics             52.9     0.5%
Morgan Stanley & Co.          52.7     0.5%
National Bank Financial       53.0     ---
Natixis                       53.5     ---
Nomura Securities Intl.       52.6     ---
Nord/LB                       52.5     ---
Parthenon Group               53.0    -0.6%
Pierpont Securities LLC       53.6     ---
Raiffeisenbank Internatio     53.2     ---
Raymond James                 53.0     ---
RBC Capital Markets           53.9     ---
Scotia Capital                54.0     ---
SMBC Nikko Securities         53.0     0.0%
Societe Generale              54.0     1.2%
Standard Chartered            54.5     ---
State Street Global Marke     53.4     ---
Stone & McCarthy Research     53.3     0.2%
TD Securities                 53.5     0.6%
UBS                           53.0     0.0%
University of Maryland        53.1     0.5%
Wells Fargo & Co.             53.6     0.5%
Westpac Banking Co.           53.0     1.4%
Wrightson ICAP                53.0     0.1%
================================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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