Manufacturing Finds Some Tailwinds in November
Manufacturing conditions in the United States continued to improve through November, according to data released by the U.S. Federal Reserve on December 16. The Fed’s index for industrial production increased 1.1 percent on the month after increasing just 0.1 percent in October. Economists had expected an increase of 0.6 percent for November. The headline index — which is comprised of three major industry groups: manufacturing, mining, and utilities — is now up 3.2 percent on the year.
The index for the manufacturing industry segment increased 0.6 percent in November and is now up 2.9 percent on the year. The data seems to confirm positive reports of manufacturing conditions from the Institute for Supply Management and Market Economics, both of which maintain purchasing managers indices.Both indices, which measure the health of the manufacturing industry in similar ways, hit their highest levels since January in November.
Each PMI is determined by conducting a survey of industry executives, and a reading above 50 indicates growth. The ISM Manufacturing Report on Business showed a 0.9 percentage point increase in its headline PMI, from 56.4 to 57.3, indicating accelerating growth. The new orders component jumped 3 points to 63.6, production climbed 2 points to 62.8, and employment grew 3.3 points to 56.4.
Markit’s U.S. Manufacturing PMI climbed 2.9 points to a 10-month high of 54.7 in November, also indicating accelerating growth. The output component jumped 6.8 points to 57.3, new orders climbed 3.5 points to 56.2, and employment decreased 0.4 points to 52.3.
A flash estimate for Markit’s December manufacturing PMI showed a slight contraction to 54.3, but Markit Chief Economic Chris Williamson is optimistic. “The flash PMI remained surprisingly high in December, suggesting strong growth momentum in the goods producing sector,” Williamson commented. “The PMI fell just short of the November reading, which had been buoyed by a rebound after a disrupted October.”
According to the Fed report, manufacturing capacity utilization is up 1.6 percentage points on the year at 76.8 percent. This is somewhat below its long-run (1972 to 2012) average of 78.7. The production outlook for December isn’t exactly clear. A surprise inventory build in October suggests that another surprise increase in production is unlikely, but end-of-year demand could still boost activity.