December figure in at 50.7% as experts see firming growth

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Manufacturing closed out 2012 on the upswing, as the monthly ISM Report showed a growth pattern and a solid increase over November.

After dropping below the 50% mark that indicates growth a month ago, the December ISM report came in at 50.7%. That’s a 1.5 percentage point increase from November, and marked the eighth month in 2012 that the index topped the 50% mark. In addition, the index indicated growth in the overall U.S. economy for the 43^rd consecutive month.

“This month's PMI reading moved manufacturing off its low point for 2012 in November. The New Orders Index remained at 50.3%, the same rate as in November, indicating growth in new orders for the fourth consecutive month,” said Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “Comments from the panel this month are mixed, with some indicating a strengthening of demand and others indicating a continuing softness in demand. Additionally, many respondents express uncertainty about government regulations, taxes and global economics in general as we approach 2013.”

Among those comments included:

• "Many Chinese sources are coming to us with cost reductions to maintain their current business volumes."
• "We are seeing stabilization of orders and costs as well as production capacity for the first time in months." (Miscellaneous Manufacturing)
• "Black Friday was good, but forward economic visibility is foggy." (Computer & Electronic Products)
• "The election is over; unemployment is dropping; consumer confidence is increasing as are home sales prices. We seem to be turning the corner. New car sales are increasing, which affects our customers." (Fabricated Metal Products)
• "Uncertainty in additional government regulations and tax climate seems to be slowing orders." (Chemical Products)

Other indexes also indicated growth in December. The Production Index registered 52.6%, a decrease of 1.1 percentage points, indicating growth in production for the third consecutive month. The Employment Index registered 52.7%, an increase of 4.3 percentage points, indicating a resumption of growth in employment following only one month of contraction since September 2009. Both the Exports and Imports Indexes registered 51.5%, returning both indexes to growth territory following consecutive periods of contraction of six and four months, respectively.

A PMI in excess of 42.6%, over a period of time, generally indicates an expansion of the overall economy. Over the last six months of 2012, manufacturing registered expansion in three months and contraction in three months, moving back and forth across the 50% mark.

"The past relationship between the PMI and the overall economy indicates that the average PMI for January through December (51.7%) corresponds to a 3.1% increase in real gross domestic product,” Holcomb said. “In addition, if the PMI for December is annualized, it corresponds to a 2.7% increase in real GDP annually.”