Economic Buzz: US Manufacturing PMI Accelerates Further

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USA factory activity rose more than expected in last December, the latest sign of strong US economic momentum, the data released by The Institute for Supply Management (ISM) revealed on Wednesday. December's reading indicates the sixteenth consecutive month of expansion in manufacturing, as readings over 50 points denote expansion.

The production index gained almost two points to 65.8 per cent, while new orders surged 5.4 points to 69.4 per cent, the strongest since January 2004 and marking seven straight months above 60.

The employment index was the only metric to experience a decrease in December, falling 2.7% to 57%. "However, the strengthening of demand for raw materials has led to supply chain delays, which have in turn been increasingly linked to higher prices as a sellers' market develops". Readings over 50% indicate more companies are expanding than shrinking.

Tim Fiore, chair of the ISM manufacturing business survey committee, said he was optimistic about ISM's latest report on the manufacturing industry.

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The December PMI registered 59.7, an increase of 1.5 percentage points from the November reading of 58.2. "Supplier deliveries continued to slow (improving) at a faster rate, and inventories continued to contract at a slower rate during the period. The customers' inventories index declined and remains at low levels". Two industries reported contraction during the period: wood products and textile mills. In responding to ISM's survey, 65 percent stated that they had difficulty hiring new employees and 44 percent increased starting pay in an effort to attract new workers.

Spending on private residential projects jumped to its highest level since February 2007 and it follows other recent numbers showing a boom in home building.

"The improvement was fairly broad based, with the production and supplier deliveries components both rising and the forward-looking new orders index seeing a particularly encouraging leap.Admittedly, the employment index fell back to 57.0, from 59.7, but it is still consistent with manufacturing payrolls continuing to expand at a healthy pace".