Manufacturing in US Caps Best Year Since '04: ISM

The acceleration in bookings indicates production will remain robust in coming months as factories race to limit mounting order backlogs amid declining customer inventories.

U.S. manufacturing expanded in December at the fastest pace in three months, as gains in orders and production capped the strongest year for factories since 2004, the Institute for Supply Management said on January 3.

The group’s factory index climbed to 59.7 from 58.2 a month earlier.

The gauge of new orders advanced to 69.4, the highest in nearly 14 years, from 64.

And the measure of production increased to 65.8, the strongest since May 2010, from 63.9

The gauge of supplier deliveries climbed to 57.9 from 56.5, indicating stronger demand was leading to longer lead times.

The survey-based measure of factory activity -- the year’s second-highest behind September, when storm-related supply delays boosted the index -- brings the 2017 average to 57.6, the best in 13 years.

The latest gain extends a string of strong readings that’s been fueled by domestic business investment, improving global economies and steady spending by American households.

The acceleration in bookings indicates production will remain robust in coming months as factories race to limit mounting order backlogs amid declining customer inventories. Increasing export orders underscore improvement in global markets.

The figures suggest manufacturing strength will persist into early 2018, even after the ISM’s semi-annual survey of purchasing managers published last month showed factories anticipate growth in capital spending to slow this year.

Bloomberg Economics’ assessment that the dip in the November ISM headline was a head fake proved accurate. “This was due to the alleviation of bottlenecks following the hurricanes, whereby supplier deliveries weighed on the headline,” according to  Carl Riccadonna and  Yelena Shulyatyeva of Bloomberg Economics

“The December results showed a payback for this effect,” they added. “However, it was not just that, as enthusiasm for the tax reform bill’s passage bolstered business confidence. This may not be the end of the ISM’s climb, as both new orders and production posted further gains in the month. Business sentiment has been high enough for long enough that it is actually starting to drive the ‘hard data’ in a positive direction.”

Other highlights of the survey include:

Factory employment gauge declined to a still-strong 57 from 59.7

Measure of export orders increased to a six-month high of 58.5 from 56

Index of customer inventories fell to 42 from 45.5, signaling stockpiles were declining at a faster pace

Factory inventories index showed a third straight month of contraction

The  Index of prices paid climbed to 69 from 65.5