The new economic year is off to a good start as the nation's factory sector continued to show an expansion in December, the Institute for Supply Management announced Monday.The ISM said its manufacturing index rose to 55.9 from 53.6 in November, with the index remaining above a level that indicates an expansion for the fifth straight month. Readings above 50 indicate an expansion; under 50, a contraction. Prior to the five-month push above 50, the manufacturing index has been below 50 for about two years. A Bloomberg News survey had expected the index to rise to 54.8 in November; the index totaled 55.7 in October.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% The manufacturing index's new orders component, a measure of future demand, surged to 65.5% in December from to 60.3% in November, which was a major achievement.

Four other key components of the index also rose in December. The production index rose to 61.8% from 59.9% in November; the employment index, to 52.0% from 50.8%; the inventories index, to 43.4% from 41.3%; and the prices paid index, to 61.5% from 55.0%.

Encouraged By Size of December's Rise

"This month's report is quite strong as both the new orders and production indexes are above 60%. The sector may be benefiting from an excessive de-stocking cycle as indicated by the recent performance of the customers' inventories index. Customers' inventories have been 'too low' for nine consecutive months, and this month's index is the lowest reading since the inception of the index in January 1997," Norbert J. Ore, chairman of the ISM's Manufacturing Business Survey Committee said, in a statement. "Overall, the recovery in manufacturing is continuing, but there are still some industries mired in the downturn as evidenced by the seven industries still in decline."

In December, 9 of the 18 manufacturing industries reported growth, the ISM said.

The index respondents' comments revealed a more broad-based recovery: "Nice rebound in our consumer business" (non-metallic mineral products sector); "Demand from automotive [manufacturers] remains strong, with some plants not having extended shutdowns during the Christmas holiday" (fabricated metals sector); "Business remains steady and strong" (primary metals sector). "Capital is tight. Forecast has been lowered for 2010" (chemical products sector); "Still not seeing any increase in production as the economic indicators are suggesting" (electrical equipment, appliances & components sector).

Economic Analysis

The December ISM manufacturing index shows an impressive, broad-based rise, and the long-term trend is obvious: The expansion is gaining steam. Also encouraging is the new orders index, a tell-tale stat regarding future demand: It's been rising for six months -- a bullish sign for the immediate quarters ahead. The U.S. recovery is strengthening and appears to be broadening.

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