Manufacturing grew in December at the second-fastest pace in more than two years, fueled by a gain in orders that will help propel the U.S. expansion.
The Institute for Supply Management’s factory index eased to 57 from the prior month’s 57.3, which was the highest since April 2011, the Tempe, Arizona-based group said today. Readings above 50 indicate growth. Other data showed construction spending rose more than forecast in November and jobless claims declined last week.
Factory purchasing managers said orders were the strongest since April 2010, helping explain why companies such as General Motors Co. and Ford Motor Co. are taking on more workers in response to rising sales. Recovering overseas economies, a pickup in business investment and greater demand for building materials are providing additional impetus for manufacturing, which makes up about 12 percent of gross domestic product.
“The year ended in a pretty bright spot for manufacturing and domestic demand,” said Peter Newland, a U.S. economist in New York at Barclays Plc, who correctly forecast the December ISM index. “Business activity, consumption and construction spending are all beginning to point in the same positive direction.”
Outlays for construction projects climbed in November to the highest level since March 2009 as homebuilding and non-residential spending made up for government cutbacks, figures from the Commerce Department also showed today.
Expenditures rose 1 percent to a $934.4 billion annualized rate, according to the report. Spending on private residential projects rose to the highest level since June 2008, while non-residential was the strongest for any month in 2013.
Stocks declined, with the Standard & Poor’s 500 Index starting the year lower for the first time since 2008, after benchmark indexes posted the biggest annual rallies in more than 15 years. The S&P 500 fell 0.9 percent to 1,831.98 at the close in New York.
Manufacturing across the globe showed signs of uneven growth in December, according to other figures. In the euro area, an index of factory activity climbed to 52.7 from a November reading of 51.6, Markit Economics said. Manufacturing in Germany increased, while a gauge of factories in France dropped to a seven-month low. An index of U.K. manufacturing cooled as export demand weakened, and readings in China slipped.
The median forecast in a Bloomberg survey for the ISM factory index called for 56.8. Estimates of 66 economists ranged from 55.3 to 58. The factory gauge averaged 53.9 for all of 2013, an improvement from 51.7 a year earlier.
The group’s new orders measure advanced to 64.2 from 63.6, with 11 industries reporting growth and one indicating a decline. The pickup in demand is spurring factories to take on more workers, according to a gauge of employment that increased to 56.9, the highest since June 2011.
The ISM’s inventory index decreased to the lowest level since July, which, combined with the jump in orders, points to production gains.
The factory index averaged 56.3 in the second half of 2013 after 51.5 in the first six months, making it a “great finish to the year,” said Bradley Holcomb, chairman of the ISM’s manufacturing report. Factories “are just burning off that inventory. Suppliers are having a bit of a hard time keeping up” with demand, he said on a conference call with reporters.
One area of strength for the U.S. economy is automobile purchases, which reached the best annualized sales pace since 2007 in November.
GM, which brought out 18 new or revamped models in the U.S. in 2013, plans 14 more this year as the largest U.S. automaker improves its lineup from one of the industry’s oldest. Ford, the No. 2 U.S. carmaker, plans to start sales of 16 fresh or updated models, triple the prior year’s number.
Consumer confidence may help sustain demand. American consumers in 2013 were more upbeat than at any time in the previous six years as views on the economy, finances and the buying climate improved, another report today showed.
The Bloomberg Consumer Comfort Index averaged minus 31.4 for 2013, the highest since 2007, when it was minus 10.5. The weekly index fell for the first time since mid-November, dropping to minus 28.7 for the period ended Dec. 29, from minus 27.4.
Higher stock prices and rising home values lifted sentiment at the end of the year, driving holiday retail shopping. An improving labor market also spurred sales.
Figures today from the Labor Department in Washington showed applications for unemployment benefits declined last week to the lowest level in a month. Jobless claims fell by 2,000 to 339,000 in the period ended Dec. 28. The median forecast of 26 economists surveyed by Bloomberg called for 344,000 claims.
Gains in the ISM gauge beginning in June signaled growing confidence among factory purchasing managers and foreshadowed a rebound in durable goods demand. Commerce Department data on Dec. 24 showed orders for non-military capital equipment excluding aircraft, a proxy for future business investment in long-lasting goods such as computers and machinery, climbed in November by the most in 10 months.
The gain in business equipment bookings helped drive a 3.5 percent increase in orders for all durable goods.
Manufacturers are also benefiting from the housing recovery. New-home sales ran at a 464,000 annual rate in November after a 474,000 pace in October that was the fastest since July 2008.
Worthington Industries Inc., a Columbus, Ohio-based steel company, reported steel-processing shipments jumped 31 percent in its fiscal second quarter ended Nov. 30 compared with a year earlier, while revenue for the unit rose 43 percent.
“Contracts, orders and shipments have increased significantly in several of our most important market segments including automotive, agriculture, and construction,” Mark Russell, president and chief operating officer, said on a Dec. 19 earnings conference call with analysts.