U.S. manufacturing grew at its swiftest pace in eight months in December, buoyed by increases in domestic and overseas demand, an industry survey showed on Friday.
Financial information firm Markit said its U.S. “flash,” or preliminary, manufacturing Purchasing Managers Index rose to 54.2, its best showing since April. It stood at 52.8 last month. A reading above 50 indicates expansion.
Output and domestic new orders also hit eight-month highs, helping the sector add momentum after conditions hit a three-year low in October. The index “signalled solid improvement in the U.S. manufacturing business conditions during December,” Markit said in a statement.
The rebound suggests conditions in the manufacturing sector, which struggled for much of the year as economic malaise abroad dried up foreign demand, were improving as the economy headed into 2013.
In December, new export orders rose at their fastest pace since March. That helped spur firms to hire at a quicker pace; the employment component rose to 54.4 from 52.6 in November.
A slow but steady improvement in employment across the U.S. economy has helped support consumer spending. Signs of life in the housing market have also boosted hopes for growth in 2013.
How much manufacturing will contribute remains unclear. While the Markit index showed quicker growth over the past two months, a separate survey from the Institute for Supply Management showed the sector contracted in November.
However, both indexes showed firms were shrinking inventories, a trend that the Markit report showed continued in December. Depleted inventories will at some point need to be replenished, which should suggest a future increase in activity.
ISM will release its survey for December on Jan. 2, the same day Markit’s final reading is due. Markit’s “flash” reading is based on replies from about 85 per cent of the U.S. manufacturers surveyed.
Quicker growth also fed into price pressure, according to Markit. The index’s input price component stood at 62.0 in December, down slightly from November’s 63.7 but well above levels seen between May and October.
“Firms often sought to pass higher input costs to clients,” Markit said, noting that “average selling prices have increased for four months running, with the latest rise the strongest seen over this period.”
Inflation in the overall economy, however, remained benign. Core consumer prices, which strip out volatile food and energy costs, rose 1.9 per cent in the year to November according to data from the Labor Department earlier on Friday.
The Federal Reserve said this week it would hold interest rates near zero until the jobless rate falls below 6.5 per cent, provided inflation does not threaten to rise above 2.5 per cent and inflation expectations stay contained.
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