Manufacturing in the US probably expanded in December at the fastest pace in six months, remaining at the forefront of the expansion entering 2012, economists said before a report on Tuesday.
The Institute for Supply Management’s factory index rose to 53.4 last month from 52.7 in November, according to the median projection of 63 economists surveyed by Bloomberg News. Fifty is the dividing line between growth and contraction. Construction spending increased for a fourth straight month in November, another report may show.
Increasing demand for autos, gains in holiday sales and lean inventories may pave the way for further strength in the industry that accounts for about 12 per cent of the economy. At the same time, faltering growth in Europe due to the debt crisis poses a risk to the US expansion.
“Manufacturing is still progressing at a nice pace,” said Russell Price, a senior economist at Ameriprise Financial Inc in Detroit. “I expect exports to continue to grow, but modestly, with economic repercussions out of Europe as a key headwind.”
The Tempe, Arizona-based group’s data are due at 10 am. Estimates for the manufacturing index ranged from 50 to 56. A reading above 42.5 generally indicates an expansion in the overall economy, the group has said.
In China and India, manufacturing expanded last month, indicating Asia’s fastest-growing major economies have so far withstood the fallout from Europe’s sovereign debt crisis.
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India’s manufacturing grew at the fastest pace in six months, stoking inflationary pressure, and a Chinese manufacturing gauge rose by more than economists expected, suggesting that a slowdown in the world’s second-biggest economy may be stabilising. In the euro area, output fell for a fifth month though the rate of decline eased slightly from November.
The US economy “has been expanding moderately, notwithstanding some apparent slowing in global growth,” the Federal Reserve said December 13 after its last monetary policy meeting of the year.
Signs the US will weather a possible recession in Europe have helped drive up shares of equipment makers. The Standard & Poor’s Machinery Index climbed 20 per cent in the fourth quarter compared with an 11 per cent gain in the broader S&P 500.
The national ISM report follows data last week showing business activity in December was little changed near a seven- month high. The Institute for Supply Management-Chicago Inc said its business barometer decreased to 62.5 from 62.6 in November as employment strengthened.
Tax credit
An end-of-year deadline to qualify for a larger government tax credit may have contributed to an increase in business demand for equipment. A tax compromise allowed companies to depreciate 100 per cent of investment in capital outlays in 2011, dropping down to 50 per cent this year.
A reviving auto industry is also boosting the US economy. Light-vehicle sales ran at a seasonally adjusted annual rate of 13.6 million in November, the fastest since August 2009, according to Autodata Corp.
General Motors Co, the largest US car maker, posted November sales growth of seven per cent versus a year earlier, partly due to Americans replacing older vehicles.
“It’s the underlying replacement demand and economy, as well as the great new products, that are really driving it,” Don Johnson, GM’s vice president for US sales, said on a conference call last month.
Namesake Brand
Ford Motor Co. last week said its namesake brand exceeded 2 million U.S. sales for the first year since 2007, led by gains for models such as the Fiesta small car and revamped Explorer sport-utility vehicle.
Growth in Asia and emerging markets is helping sustain orders for U.S.-produced goods while demand from Europe stumbles. Grand Rapids, Michigan-based Steelcase Inc., which designs and makes products for offices, is seeing room for expansion in India and China, while sales are uneven in Europe.
“We saw revenue growth in some countries” in Europe in the most recent quarter, “while others were down,” James Hackett, president and chief executive officer of the Grand Rapids-based company, said on a Dec. 22 conference call. “Our commitment to Asia continues to pay off.”
September and October were the best months for U.S. exports on record, according to figures from the Commerce Department.
Meantime, housing is showing signs of stabilizing. Construction spending increased 0.4 percent in November, according to the median projection in the Bloomberg survey. It rose 0.8 percent in October.