Friday, January 2, 2004
Great News-Manufacturing Recovery is Under Way!
UPDATE 2-US factories surge in Dec, helped by dollar
Fri January 02, 2004 11:34 AM ET
(Adds ISM comments)
By Ros Krasny
CHICAGO, Jan 2 (Reuters) - U.S. factory activity expanded at the fastest pace for 20 years in December, a survey showed Friday, adding evidence that a manufacturing recovery is under way and benefiting from the lower dollar in the form of higher exports.
The Institute for Supply Management said its barometer of manufacturing activity jumped to 66.2 in December from 62.8 in November. Wall Street economists had forecast the index at 61.0.
U.S. stock prices rose on the data while U.S. Treasury bond prices fell sharply.
"It's very positive for the the overall economic outlook, suggesting continued momentum in the manufacturing sector," said John Silvia, chief economist with Wachovia Bank in Charlotte, N.C.
A reading above 50 in the index signals growth in the industrial sector, which comprises about a sixth of the U.S. economy. Factories were hard hit by the U.S. recession that officially ended in November 2001 and have been slow to recover until now.
Manufacturing jobs have been even slower to rebound, but according to the ISM survey are on the way back.
ISM's jobs component was 55.5, up from 51.0 in November. The employment index was above 50 for the second straight month after being lower 37 straight months -- a trend that could have implications for the December payrolls report due on Jan. 9.
Ian Shepherdson, chief U.S. economist with High Frequency Economists, said the current pace of factory expansion "cannot possibly be achieved with the existing manufacturing work force."
DOLLAR BOOSTING EXPORTS
ISM's export orders index rose to 60.4 from 57.9, with sectors as diverse as furniture, primary metals, industrial and commercial equipment and chemicals contributing.
"Normally there is a lag between a currency starting to weaken and export growth starting, and we are finally starting to see the results of the lower U.S. dollar," Tom Duesterberg, president of Tempe, Arizona-based ISM, told Reuters.
With business confidence up, "we expect more robust capital investment this year" in the form of new productive capacity and hiring, Duesterberg said.
New orders, often seen as reflective of future growth, rose to 77.6 from 73.7, the highest since July 1950.
Overall, 17 of 20 industries in the manufacturing sector reported growth in December.
"It's strong, strong and strong. There are no weak spots. Inventories are still too low, both customer and factory inventories. So this thing is just going to keep going," said Ram Bhagavatula, chief economist with the Royal Bank of Scotland in New York.
The surging factory sector could put pressure on the Federal Reserve to change its accommodative monetary policy some time in 2004. Official interest rates have been held at 45-year lows by the Fed to encourage growth.
Futures markets expect the Fed to raise rates by a quarter point by the end of July, with a second hike by the end of September.
The monthly ISM survey is derived from data provided by purchasing executives at over 350 industrial companies.
UPDATE 2-US factories surge in Dec, helped by dollar
Fri January 02, 2004 11:34 AM ET
(Adds ISM comments)
By Ros Krasny
CHICAGO, Jan 2 (Reuters) - U.S. factory activity expanded at the fastest pace for 20 years in December, a survey showed Friday, adding evidence that a manufacturing recovery is under way and benefiting from the lower dollar in the form of higher exports.
The Institute for Supply Management said its barometer of manufacturing activity jumped to 66.2 in December from 62.8 in November. Wall Street economists had forecast the index at 61.0.
U.S. stock prices rose on the data while U.S. Treasury bond prices fell sharply.
"It's very positive for the the overall economic outlook, suggesting continued momentum in the manufacturing sector," said John Silvia, chief economist with Wachovia Bank in Charlotte, N.C.
A reading above 50 in the index signals growth in the industrial sector, which comprises about a sixth of the U.S. economy. Factories were hard hit by the U.S. recession that officially ended in November 2001 and have been slow to recover until now.
Manufacturing jobs have been even slower to rebound, but according to the ISM survey are on the way back.
ISM's jobs component was 55.5, up from 51.0 in November. The employment index was above 50 for the second straight month after being lower 37 straight months -- a trend that could have implications for the December payrolls report due on Jan. 9.
Ian Shepherdson, chief U.S. economist with High Frequency Economists, said the current pace of factory expansion "cannot possibly be achieved with the existing manufacturing work force."
DOLLAR BOOSTING EXPORTS
ISM's export orders index rose to 60.4 from 57.9, with sectors as diverse as furniture, primary metals, industrial and commercial equipment and chemicals contributing.
"Normally there is a lag between a currency starting to weaken and export growth starting, and we are finally starting to see the results of the lower U.S. dollar," Tom Duesterberg, president of Tempe, Arizona-based ISM, told Reuters.
With business confidence up, "we expect more robust capital investment this year" in the form of new productive capacity and hiring, Duesterberg said.
New orders, often seen as reflective of future growth, rose to 77.6 from 73.7, the highest since July 1950.
Overall, 17 of 20 industries in the manufacturing sector reported growth in December.
"It's strong, strong and strong. There are no weak spots. Inventories are still too low, both customer and factory inventories. So this thing is just going to keep going," said Ram Bhagavatula, chief economist with the Royal Bank of Scotland in New York.
The surging factory sector could put pressure on the Federal Reserve to change its accommodative monetary policy some time in 2004. Official interest rates have been held at 45-year lows by the Fed to encourage growth.
Futures markets expect the Fed to raise rates by a quarter point by the end of July, with a second hike by the end of September.
The monthly ISM survey is derived from data provided by purchasing executives at over 350 industrial companies.
