Factory activity accelerates

2/03/2011

WASHINGTON (MarketWatch) — Activity at the nation’s manufacturers in January accelerated to the fastest pace seen since May 2004, according to a closely followed survey of top executives released Tuesday.

The Institute for Supply Management index rose to 60.8% in January from 58.5% in December.
It marked the 18th straight month of expansion in factory activity, as the manufacturing sector continues to outperform other sectors of the U.S. economy.

The report was stronger than expected. The ISM index had been expected to remain steady at 58.5%, according to economists surveyed by MarketWatch. See comprehensive MarketWatch indicator calendar.
“Overall, this is very very strong,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
The report gave a further boost to U.S. stocks, which had already opened higher to extend Monday’s gains on Wall Street. The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 12,005, -36.55, -0.30%)   was up about 114 points in trading, with the S&P 500 index /quotes/comstock/21z!i1:in\x (SPX 1,298, -6.08, -0.47%)  and the Nasdaq Composite Index /quotes/comstock/10y!i:comp (COMP 2,738, -11.42, -0.42%)  both outdoing the Dow on a percentage basis. See more on trading in U.S. stocks to kick off the month of February.
In bonds, Treasury prices /quotes/comstock/31*!ust10y (UST10Y 3.53, +0.05, +1.44%)   fell further, pushing yields up on the stronger-than-expected report. See more on Treasurys extending losses.
Readings above 50% in the ISM diffusion index indicate that more firms are growing than contracting. The ISM tracks the breadth of growth across firms, asking purchasing managers if business is better or worse in the most recent month than in the prior one.
The nation’s economy, as measured by gross domestic product, accelerated to a 3.2% growth pace in the fourth quarter.
Norbert Ore, head of the ISM’s survey committee, said the January report showed that manufacturing is carrying a lot of momentum into the first quarter.

ISM manufacturing details

Fourteen of 18 industries as tracked by Tempe, Ariz.-based ISM were growing in January, led by petroleum, primary metals and apparel. Read the full survey.
January’s new-orders index also jumped, reaching 67.8% from 62% in December, the ISM’s data showed. This is the highest since January 2004.
Production rose slightly, hitting 63.5% from 63.0% in the prior month.
There was good news on the jobs front as well, as the employment index improved to 61.7% from 58.9% in December. This is the highest level since April 1973.
On Friday, the government will report on nonfarm payrolls and the nation’s unemployment rate for January.
Economists surveyed by MarketWatch are looking for payrolls to rise 140,000 after having added 103,000 jobs in December. The jobless rate is projected to tick up to 9.5% from 9.4% in the prior month.
Another bright spot was the export sector, which rose to 62% in January from 54.5% in the prior month.
The price index jumped to 81.5 in January from 72.5 in the prior month. Ore said he thought that some firms are able to pass these higher prices to customers.
Richard Bergmann, managing director of Accenture’s manufacturing practice, said some companies are seeking higher prices for critical commodities like metals and plastic.
But Bergmann said there was “not a lot of wiggle room” due to long term contracts with material suppliers for higher prices to be accepted.
In a separate report, the Commerce Department said U.S. construction spending fell 2.5% in December