Steady supply of demand bodes well for U.S. economy

Manufacturing in the U.S. grew in December at the fastest pace in six months, bolstered by gains in production and orders that show the industry remained at the forefront of the expansion 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. 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. “It's good to know that purchasing managers are feeling a bit better about the economic backdrop,” 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. Global economic activity is showing signs of life.” Orders and production increased at the fastest paces since April, today's figures showed. Declines in measures of inventories at manufacturers and at their customers may point to further output gains in coming months. Estimates for the manufacturing 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. Foundation is there A report from the Commerce Department showed construction spending rose in November for a third time in four months, indicating the industry helped boost growth at the end of 2011. 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. 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. 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. Swiss Manufacturing A gauge of Swiss manufacturing rose to 50.7 in December from 44.8 when adjusted for seasonal swings, Credit Suisse Group AG in Zurich said in an e-mailed statement today. That's the first reading above 50 since August. A U.K. index rose to 49.6 from a revised 47.7. The ISM showed the production index increased to 59.9 in December from 56.6. The new orders measure rose to 57.6 from 56.7, while the group's gauge of export orders picked up to 53 from 52. The inventory index dropped to 47.1 from 48.3, while a gauge of customer stockpiles decreased to 42.5 from 50. The index of prices paid rose to 47.5 from 45. The employment index rose to 55.1, the highest since June, from 51.8. Manufacturing payrolls rose by 5,000 last month after a 2,000 gain the prior month, according to a survey of economists surveyed by Bloomberg before the Labor Department's payroll report on Jan. 6. Capital Spending A government tax credit may have contributed to an increase in business demand for equipment in the months leading up to 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., 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. Ford's Sales 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., 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 on record, according to figures from the Commerce Department. --Bloomberg News