U.S. manufacturing in December expanded at its fastest pace in two years, setting the stage for continuing growth in 2017. Led by a 7.2 percent increase in new orders, the nation’s leading manufacturing index, the Institute for Supply Management’s PMI, reached 54.7 percent – its highest level since 2014.
New orders, production and employment all reached new highs in December, according to Bradley J. Holcomb, chair of the ISM’s Manufacturing Business Survey Committee. New orders hit a level of 60.2; production levels increased by 4.3 percent to reach 60.3; and employment increased 0.8 percent to 53.1. Any number above 50 indicates manufacturing expansion.
“Last December, the PMI was 48.0 – we seemed to peter out last year,” Holcomb said. “This December we’ve seen four months of consecutive growth.”
A number of factors are spurring optimism among U.S. manufacturers, Holcomb said. “I think we saw a slowdown [in August] as we built up to the U.S. presidential election and now that has taken place. The stock market has been going up and consumer confidence is at an all-time high. Everything is pointing North, led by the PMI at 54.7.”
It appears that a lot of uncertainty leading up to the U.S. election has been put to rest, he added. The Eurozone PMI has been growing, he said, and new export orders to U.S. factories increased by 4 percent in December to reach 56.0. December was a “very strong month in terms of booking and billing,” an electronics executive reported, “which will contribute to a good overall year revenue-wise."
One area to watch, though, is pricing. Suppliers in December raised their prices by 11 percent to reach 65.5 on the ISM index. While that’s good news for suppliers, buyers were paying the highest prices of the year in December, Holcomb said. “It’s unusual to have an 11-point change, and normally you’d see prices increase in January as suppliers negotiate their prices for the coming year. A lot of things hinge on the price of oil—we see prices increasing in aluminum, brass and steel, which require a lot of energy to produce.” It’s also possible suppliers are making up lost ground: prices in 2016 were lower than the year before.
“Overall,” Holcomb said, “I think it is a very good report and we closed the year with people feeling good about the business environment. Barring any unforeseen circumstances, 2017 should be a good year."