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Published: Monday, 1/3/2011

December marks 17th straight month of growth in factory activity

WASHINGTON — Manufacturers produced more goods and booked more orders last month, leading to the fastest growth in factory activity since May.

The Institute for Supply Management said Monday that its index of manufacturing activity rose to 57 in December from 56.6 in the previous month. Any reading over 50 indicates growth. The latest is well above the recession's low of 32.5, hit in December 2008. But it's below the reading of 60.4 in April, the highest level since June 2004.

The report shows that manufacturers carried considerable momentum into the new year. Automakers, computer and electronics companies, and industrial machinery firms showed particular strength, the Tempe, Ariz.-based ISM said.

A separate report Monday showed that construction spending rose 0.4 percent in November, the third straight monthly increase. Builders began work on more homes and the government boosted its investment in construction projects to lift spending to $810.2 billion, the Commerce Department said. Still, that's only 2.3 percent above August's figure, which was the lowest level in a decade.

Manufacturing has been one of the strongest performers since the recession ended in June 2009. The latest report suggests that is likely to continuing in the coming months. People have been spending more money in recent months, and businesses have had a hard time keeping their shelves stocked. Economists say that has many factories anticipating more demand.

And the tax-cuts signed into law last month by President Barack Obama will put more money into people's pockets this year and enable companies to write-off the full cost of new, big-ticket capital goods, such as industrial machinery. Both steps should encourage more spending.

“Manufacturing firms continue to experience, and plan for, a sustained economic expansion,” said John Silvia, chief economist at Wells Fargo Securities. “We are moving from recovery to expansion in the economy.”

The new orders index rose sharply to 60.9, the highest level since May. The production index also jumped.

Manufacturers are also benefiting from stronger demand overseas, particularly in large developing countries. China, Brazil and India are among those nations recovering at a faster pace than developed regions, such as Europe and Japan.

A survey of Chinese manufacturers last week showed that nation's boom lost a bit of momentum last month. The HSBC China Manufacturing Purchasing Managers Index slipped to 54.4 in December from 55.3 in the previous month, a three-month low. Still, the number indicates China's factories are increasing output.

In the U.S., export orders are still growing, the ISM said, but at a slower pace. ISM's index of export orders was 54.5 in December, down from 57.

A big question for this year is whether the growth will translate into more hiring. According to the ISM, manufacturers are adding jobs, but at a slower pace. Its employment index fell to 55.7 from 57.5. But the ISM's employment index hasn't always been very reliable: the manufacturing sector has actually shed small numbers of jobs for the past four month, according to the Labor Department.

The ISM surveys purchasing managers at about 350 companies around the country to compile the index.



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