Economic Watch: Manufacturing Best in 2 Years, Construction Highest in 10 Years

Manufacturing in the U.S. ended 2016 on a high note, hitting its best level since 2014, according to two new reports, while separate data reveals construction spending in the country hit its highest level in a little more than a decade.

A survey of the nation’s purchasing managers by the Institute for Supply Management shows manufacturing activity increased for the fourth straight month in December. Its Purchasing Manager’s Index (PMI) registered 54.7%, up 1.5 percentage points from November’s reading. This is the highest level in two years and better than a consensus estimate from analysts.

A reading above 50% indicates expansion. Below 50% generally means contraction. The index has been above the 50% level for 10 straight months.

"The past relationship between the PMI and the overall economy indicates that the average PMI for January through December of 51.5% corresponds to a 2.6% increase in real gross domestic product (GDP) on an annualized basis,” said Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee. “In addition, if the PMI for December is annualized, it corresponds to a 3.6% increase in real GDP annually."

The New Orders Index registered 60.2%, an increase of 7.2 percentage points above the November reading. The Production Index registered 60.3%, 4.3 percentage points higher than the month before. The Employment Index registered 53.1%, an increase of 0.8 percentage point from the November reading. All three came in at their highest levels of 2016.

A separate report from the financial information services provider IHS Markit was nearly as bright, showing U.S. manufacturing in December hitting a 21-month high.

Its U.S. Manufacturing Purchasing Managers’ Index registered 54.3 in December, up slightly from 54.1 in November. Like the ISM index, any reading above 50 is considered positive, thought it's not expressed as a percentage.

The latest rise in the headline index reading was largely driven by stronger rates of employment growth and inventory building in December, which more than offset slightly weaker increases in output and new orders, according to the report.

Manufacturing production expanded at a robust pace in December, which marked seven months of sustained recovery in the IHS Markit data. However, the rate of output growth eased from November’s 20-month peak. Survey respondents cited improving order books and efforts to boost inventories. Reflecting this, stocks of finished goods rose at the fastest pace since February 2015.

According to Chris Williamson, chief business economist at IHS Markit, the latest numbers lead to promising signs that growth could pick up further in 2017.

“The combination of improving current demand and optimism for a further upturn in 2017 prompted companies to build inventory and boost capacity. The latter was reflected in the largest rise in factory payroll numbers for one and a half years,” he said. “The upturn is being driven almost entirely by rising demand from domestic customers, with exports stymied by the dollar’s recent surge.”

Construction Spending Highest Since 2006

A separate Commerce Department report shows the value of construction put in place in the U.S. during November was estimated at a seasonally adjusted annual rate of $1.18 trillion, 0.9% above the revised October estimate and its highest level since April 2006. The gain is slightly better than analysts were expecting.

The November figure is 4.1% above the November 2015 estimate. Also during the first 11 months of this year, construction spending amounted to $1.07 trillion, 4.4% above the level for the same period in 2015.

Spending on private and residential construction each improved 1% in November from the month before, while nonresidential building recorded a 0.9% gain. Public construction saw an 0.8% hike.

“Construction had been lagging through most of 2016 but, like the factory sector, appears to have picked up steam going into year-end,” according to analysis from Econoday. “The breadth of gains is most impressive in this report, one that will give a lift to fourth-quarter GDP estimates.”

Source:  TruckingInfo.com

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