The Institute for Supply Management (ISM) index of manufacturing rose 1.5 points to 59.7 in December, well ahead of market expectations for a flat reading. This marks the 16th straight month that the index has been in expansionary territory.
The report details were generally positive, with increases in all major indexes with the exception of employment that slipped to 57.0 (from 59.7).
The prices paid index also rebounded to 69.0, after falling to 65.5 in November.
The spread between new orders and inventories – a good leading indicator of activity – widened further in December to 20.9 (+3.9 points), suggesting that the manufacturing is likely to hold onto recent gains in the coming months.
Key Implications
The manufacturing index regained its October peak, suggesting strong growth in the sector to end 2017. Momentum is strong heading into the New Year, and with tax stimulus boosting bottom lines and supporting demand, growth is likely to continue.
All signs point to the U.S. economy continuing to run above its cruising speed, which should eat up any remaining economic slack and set the stage for higher inflation. As the unemployment plunges to new lows, it will be the key indicator to watch for the pace of rate hikes from the Federal Reserve.
