Manufacturing Expands by Most in Six Months

U.S. factories expanded in December at the fastest pace in six months, adding to evidence manufacturing is improving from India to the U.K. entering 2012.

The Institute for Supply Management’s factory index climbed to 53.9 last month from 52.7 in November, the Tempe, Arizona- based group’s data showed today. Fifty is the dividing line between growth and contraction, and economists surveyed by Bloomberg News forecast the gauge would rise to 53.5.

Stocks surged and commodities rose as the data showed factory orders and production grew at the strongest rates in eight months while inventories were cut. Combined with another report showing construction spending (CNSTTMOM) climbed in November, the figures indicate the world’s largest economy accelerated in the final months of 2011.

“Global economic activity is showing signs of life,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York, who correctly projected the factory gauge. “Manufacturing in the early part of the year will keep expanding. It’s good to know that purchasing managers are feeling a bit better about the economic backdrop.”

Estimates for the factory index from 74 economists ranged from 50 to 56. A reading above 42.5 generally indicates an expansion in the overall economy, the group has said.

The Standard & Poor’s 500 Index climbed 1.6 percent to 1,277.06 at the close in New York. The yield on the benchmark 10-year Treasury note jumped to 1.96 percent from 1.88 percent on Dec. 30. Crude oil for February delivery on the New York Mercantile Exchange rose 4.2 percent to $102.97 a barrel, the highest in more than seven months.

Construction Spending

A report from the Commerce Department showed construction spending rose in November for a third time in four months. Building outlays increased 1.2 percent, exceeding the median estimate in a Bloomberg survey that called for a 0.5 percent gain, Commerce Department figures showed.

Manufacturing figures from around the world today showed the industry is surviving the strains from Europe’s sovereign debt crisis. India’s manufacturing grew at the fastest pace in six months and a Chinese factory gauge rose by more than economists expected, suggesting that a slowdown in the world’s second-biggest economy may be stabilizing.

A gauge of Swiss manufacturing rose to 50.7 in December, the first reading above 50 since August, Credit Suisse Group AG in Zurich said in an e-mailed statement. A U.K. index rose to 49.6 from a revised 47.7.

In the U.S., the ISM report showed the production and orders measures increased in December to the highest levels since April. The gauges of factory inventories and customer stockpiles showed faster rates of contraction.

Factory Employment

The manufacturing employment index (NAPMEMPL) rose to the highest since June. Factory payrolls rose by 5,000 last month after a 2,000 gain in November, according to a survey of economists surveyed by Bloomberg before the Labor Department’s payroll report on Jan. 6.

A government tax credit may have contributed to an increase in business demand for equipment in the months before the end- of-the-year deadline. The Obama administration’s tax compromise allowed companies to depreciate 100 percent of capital outlays in 2011 and 50 percent in 2012.

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.

Replacement Demand

“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.

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.

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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