Growth in manufacturing eased slightly last month, but at a reading of 57.0, it was well above the 50.0 dividing line between an expanding manufacturing sector and one that is declining. It also was a bit better than expected and suggests fully that the key industrial sector is faring just fine as we begin a new year.
All told, expectations for this sector had been 56.6, so the latest month was a bit stronger than that. Looked at in perspective, we are just nominally below a two-and-a-half-year high in this category. Importantly, the ISM's new-orders gauge, a measure of future demand, rose from 63.6 in November to 64.2 last month. That was the highest level in this sector since April of 2010.
Besides new orders, increasing growth was reported in the following areas, employment, supplier deliveries, and prices. On the other hand, backlogs and inventories slowed their rate of improvement, with inventories actually contracting, which might not be a bad thing, as lower inventories will, at some point, need to be restocked, and that will boost orders and production, thereby lifting this area's monthly strength.
Looked at on a month-to-month basis, December was the second best month of 2013, being just slightly surpassed in November. By comparison, this index, which showed improvement on an aggregate basis for 11 of the 12 months last year, ranged from a low of 49.0 in May to the aforementioned 57.3 in November. For the year as a whole, the average was 53.9.
As to the sector's respondents, there were reports of meaningful increases in sales in apparel, leather, and allied products, while backlogs were picking up in fabricated products. Finally, in paper products, orders and prices continued to be strong in December.
On the whole, this was a solid report and suggests that aggregate GDP growth in the just-completed fourth quarter probably did not fall all that dramatically from the third-quarter rate of 4.1%, with the backtracking being largely a function, we sense, of the level of inventories, which shot up over the summer, easing back somewhat. As to specifics, we now think that growth was on the order of 2.5%, or so last quarter, with any surprises likely on the upside.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.