US manufacturing expanded slightly last month

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Associated Press

Posted on January 2, 2013 at 9:00 AM

Updated Wednesday, Jan 2 at 3:02 PM

WASHINGTON (AP) — U.S. manufacturing grew slightly last month and factory hiring increased. The modest gain suggests the economy entered the new year with some momentum.

The Institute for Supply Management said Wednesday that its index of manufacturing activity rose in December to 50.7. That's up from a reading of 49.5 in November, which was the lowest reading since July 2009, one month after the recession ended.

A reading above 50 indicates growth, while a reading below signals contraction. The ISM is a trade group of purchasing managers.

A measure of employment increased last month to 52.7. That's up from 48.4 in November, which was the first time the employment gauge fell below 50 in three years.

Factories have cut jobs in three of the four months through November, according to government data. The jump in employment in the ISM survey suggests manufacturers may have stepped up hiring last month.

The Labor Department releases the December jobs report on Friday.

Still, a gauge of new orders was unchanged and production grew more slowly, the survey found. Manufacturers also cut back on stockpiles, a sign of concern about future demand.

"The trend in manufacturing remains weak," Jim O'Sullivan, an economist at High Frequency Economics, said in a note to clients.

The closely watched manufacturing survey was completed before Congress reached a deal to avoid the "fiscal cliff."

The last-minute deal passed Tuesday averts widespread tax increases and delays deep spending cuts that had threatened to push the country back into recession. Still, most Americans will see some increase in taxes this year, which will likely slow consumer spending.

Stocks surged immediately after the market opened in response to the deal. The Dow Jones industrial average jumped 308 points — the biggest gain in a year — to close up at 13,412. Broader indexes also rose sharply.

A gauge of export orders rose above 50 for the first time in six months, according to the ISM survey. That's a hopeful sign that overseas economies are improving, raising demand for U.S. goods.

A survey in China on Monday found manufacturing activity in that country expanded for the third straight month. That adds to evidence that its economy is improving after a slowdown last year.

Growth in the U.S. economy is being driven by other sectors, such as housing. A government report showed that construction firms spent more on home building in November.

Overall construction spending slipped 0.3 percent because of a sharp drop in federal government projects. Spending on commercial buildings, such as office buildings and shopping malls, also fell.

There have been some positive signs for factory output. In November, companies substantially increased their orders for a category of large equipment that reflects their investment plans. That followed a big increase in the same category in October.

The economy grew at a 3.1 percent annual rate in the July-September quarter, much better than the 1.3 percent pace in the April-June quarter. But economists expect growth slowed in the final three months of last year, partly because of the uncertainties surrounding the fiscal cliff, to below a 2 percent pace.

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