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U.S. Manufacturing Activity Accelerated Sharply in January
- The Institute for Supply Management (ISM) manufacturing index rose to 53.1 in January 2013 from 50.2 in the previous month, thereby beating expectations for a modest increase to 50.6.
- The broad improvements among the ISM sub-components point to a notable pickup in activity and sets the stage for growth in the US economy to resume an upward trajectory into 2013 after taking a brief pause at the end of 2012.
- In a separate report, construction spending increased by 0.9% in December 2012, thereby beating expectations for a 0.6% increase and building on the upward revisions during the previous two months.
Activity in the US manufacturing sector expanded in January 2013 at a faster pace than the previous month as evidenced by the ISM manufacturing index rising to 53.1 in the month from 50.2 in December. The increase in the gauge of manufacturing activity in January put the index at its highest level since April 2012 and well above market expectations for a reading of 50.6 in the month.
The sharp improvement in the headline index to kick off 2013 reflected sizable increases in the majority of the sub-components. The measure of current production rose by 1.0 point to 53.6, which is its best reading since May 2012, while "new orders" jumped by 3.6 points to an eight-month high of 53.3. As well, the "employment" sub-index rose by 2.1 points to 54.0, which is its highest level since last June. The "inventory change" component surged by 8.0 points to 51.0, thereby indicating that survey respondents’ inventories increased for the first time since October 2012. Finally, the "supplier delivery" sub-index edged down by 0.1 points in January, thereby indicating that shipments from suppliers were not quite as slow as the previous month (delivery times tend to lengthen as suppliers face capacity restraints).
The better than expected January ISM manufacturing data are encouraging because it provides a solid starting point for activity in 2013; however, the comments from the survey’s respondents were fairly dour with several mentions of the negative effects on demand of ongoing economic uncertainty related to the US fiscal situation. With that said, the broad improvements among the ISM sub-components point to a notable pickup in activity and sets the stage for growth in the US economy to resume an upward trajectory into 2013 after taking a brief pause at the end of 2012.
In a separate release this morning, construction spending in the US rose by 0.9% in December 2012, thereby beating the 0.6% increase expected by markets. As well, the previously reported 0.3% decline in November was revised upward to a 0.1% gain while October’s increase was revised upward sharply to 1.6% (from 0.7% previously). The strength in spending in December was concentrated in the private sector (2.0%) where sizable gains were seen in both residential (2.2%) and non-residential (1.8%) construction spending in the month. In contrast, public spending declined by 1.4% with weakness spread among its components.
Written by RBC Financial Group