Manufacturing Activity Expands in December, New Orders Index Nears 70%

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The manufacturing sector that is central to the U.S. economy continued to expand at a strong pace in the final month of 2017, according to an industry survey released Wednesday. The unexpected increase by the headline index was partly due to a notable acceleration in the pace of new orders growth, as the new orders index jumped to 69.4 in December from 64.0 in November. The production index also increased, rising to 65.8% from 63.9%, while the supplier deliveries index rose to 57.9%, the inventories index went up to 48.5% and the prices index hit 69%, rising from 65.5%.

The institute's Employment Index fell to 57% in December from 59.7% the month before. Fifteen industries reported expansion, while only one reported a decrease in employment.

According to ISM, any reading above 50 points shows an increase in factory activity.

The December PMI registered 59.7, an increase of 1.5 percentage points from the November reading of 58.2.

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Readings above 50 indicate expansion in the manufacturing industry.

What happened: Sixteen of the 18 industries tracked by ISM reported growth. "The customers' inventories index declined and remains at low levels". This indicates a slower pace of deliveries as production strives to keep pace with a growing number of new orders.

Of the 16 industries reporting growth in December, the machinery, chemical, and computer and electronic products sectors reported the biggest gains. "However, the strengthening of demand for raw materials has led to supply chain delays, which have in turn been increasingly linked to higher prices as a sellers' market develops".

Andrew Hunter, US economist at Capital Economics, said the rebound in the ISM manufacturing index leaves it close to a 13-year high and at a level that historically has been consistent with GDP growth accelerating to more than 4% in annual terms. Order backlogs have grown for 11 consecutive months.

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