An unexpectedly strong report on manufacturing activity Monday bolstered confidence that the nation’s factories will help sustain an economic recovery.
The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index was 55.9 in December, following November’s 53.6. A reading above 50 indicates growth.
That is the fifth consecutive month of expansion and the highest reading for the index since April 2006. Analysts polled by Thomson Reuters had expected a reading of 54.3.
The report said new orders, a signal of future production, jumped to 65.5 from 60.3 in November. Indexes measuring production and employment also rose.
The ISM’s manufacturing index first showed growth in August after 18 months of contraction. The index’s peak in the last decade was 61.4 in May 2004. It bottomed at 32.9 in December 2008.
“Overall, this was a very strong report, and it suggests that the recovery in the U.S. manufacturing sector is gaining further traction,” Millan Mulraine, an economist at TD Securities, wrote in a note to clients.
The ISM report showed that inventories held by manufacturers’ customers are dropping, a sign of future gains as more sales will be filled through new production rather than existing stockpiles.
But economists said a more sustainable recovery will depend on increasing demand from consumers and businesses, not just replenishing inventories.
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