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Feb 2, 2010
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US manufacturing heats up to 2004 high

By
Reuters
Published
Feb 2, 2010

By Veronica Smith (AFP)

WASHINGTON — The US manufacturing sector kicked off the year with gusto in January, a private survey showed Monday 1 February, the sixth consecutive month of expansion in the sector leading the economic recovery.



The Institute for Supply Management said its manufacturing index, also known as the purchasing managers index, climbed to 58.4 percent in January from December from 54.9 percent in December.

It was the highest PMI reading since August 2004, when the index registered 58.5 percent, and much stronger than the 55.5 percent expected by most analysts. Any number above 50 percent indicates growth.

"Manufacturing industries shot the lights out on the upside in January, with broad-based gains across all the components of the survey," said Brian Bethune, chief US financial economist at IHS Global Insight.

"Overall, the strong gains in the ISM manufacturing index are consistent with other leading indicators, including the IHS Global Insight leading indicator, that the recovery is building some underlying strength."

Norbert Ore, head of the ISM survey committee, said the report provided "significant assurance" that the manufacturing sector was recovering.

Both the new orders and production sub-indexes were above 60 percent, "indicating strong current and future performance for manufacturing," he said.

With 13 of 18 industries surveyed reporting growth, up from nine industries last month, "this is a good indication that the impact of the recovery is expanding," he added.

The growth leaders included apparel, textile machinery and transportation equipment industries; furniture was the only industry that reported a contraction.

The PMI turned the corner to growth in August after declining for 13 consecutive months amid the worst recession in decades.

The recovery in manufacturing has led the economic rebound that began in the 2009 third quarter after a full year of contraction in gross domestic product (GDP), the broad measure of the country's goods and services output.

In January, the 12-month average of the PMI stood at at 48.1 percent, in excess of the 42 percent level the institute considers indicates an expansion of the overall economy.

The ISM said the January PMI indicated economic growth for the ninth consecutive month, as well as expansion in the manufacturing sector for the sixth month in a row.

"The past relationship between the PMI and the overall economy indicates that the PMI for January corresponds to a 5.5 percent increase in real gross domestic product on an annual basis," Ore said.

The employment sub-index vaulted 3.1 percentage points to 53.3 percent in January, the second month of growth and the highest reading since April 2006.

The employment number was seen as a bellwether for the January jobs data to be released Friday 5 February.

The Labor Department's unemployment and payrolls figures are expected to be scrutinized for signs of improvement from the 10.0 percent jobless rate and 85,000 jobs lost in December.

A recovery in the jobs market is considered key to reviving consumer spending, which drives the bulk of US output and is needed for a self-sustaining recovery.

The consensus forecast is that unemployment held steady but the economy created 13,000 jobs.

The PMI report "tilts the risks to the forecast for a 20,000 decline in manufacturing payrolls for January toward a smaller decline," said Ryan Sweet of Moody's Economy.com.

The PMI prices sub-index soared 8.5 percentage points to 70 percent, the seventh month running the index has registered above 50 percent.

Andrew Busch at BMO Capital Markets said the impressive jump in prices paid may lead the Federal Reserve to raise near-zero interest rates, in place for more than a year to kick-start GDP growth, sooner than anticipated.

The ISM report presents a "mixed outlook... as growth strong but inflation may draw Fed faster," Busch said.

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