The Economy

U.S. Factory Activity Surges to Two-Year High

"The economy is ending the year on a high note with even the manufacturing sector showing signs of faster growth," an economist says.
Matthew HellerJanuary 4, 2017
U.S. Factory Activity Surges to Two-Year High

U.S. manufacturing activity rose to a two-year high last month amid a sharp increase in new orders, according to the Institute for Supply Management.

In its latest Report on Business, the ISM said its index of national factory activity rose 1.5 percentage points to 54.7 last month, the highest level since December 2014. A reading above 50 indicates an expansion in manufacturing, which accounts for about 12% of the U.S. economy.

The increase reflected in part a jump of 7.2 percentage points in new orders, the highest level since November 2014. Twelve industries, including petroleum, electrical equipment, appliances and components and machinery, reported growth in new orders last month.

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“The economy is ending the year on a high note with even the manufacturing sector showing signs of faster growth. It appears that President [Barack] Obama will be leaving his successor with a pretty good economy,” said Joel Naroff, chief economist at Naroff Economic Advisors.

As Reuters reports, the collapse in oil prices in 2015 and a surge in the dollar has hobbled manufacturing, with business spending on equipment declining for four straight quarters. But the sector has perked up as oil prices have increased, touching 18-month highs on Tuesday.

The ISM also reported that new export orders rose 4 percentage points, factory employment hit its highest level since June 2015, and the raw materials prices index surged 11 percentage points to its highest level since 2011.

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“The sharp rise in the prices index plays into the global ‘reflation’ theme with investors pointing to rising input prices in China and elsewhere as signaling a potential return to higher inflation rates,” said Andrew Hollenhorst, an economist at Citigroup in New York

In a separate report, the Commerce Department said construction spending increased 0.9% to $1.18 trillion in November, the highest level since April 2006.

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