Factory Index Surges in December

The gain is driven by a jump in new orders, which posted their best reading since 1950.
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Updated from 11:05 a.m.

What's gotten into the manufacturing sector?

Factories in December had their best month in two decades, according to the Institute For Supply Management's Purchasing Managers Report.

The index jumped to 66.2, blowing away the consensus estimate of 61, and well above November's reading of 62.8.

"The manufacturing pace is consistent with an outsized increase in corporate profits," said Mat Johnson, an economist at Quantit Economic Group.

The jump was driven by a surge in new orders, which posted their highest reading since July 1950. That index registered 77.6, up from 73.7 in November.

Jim Melcher, president and market strategist at Balestra Capital, called the report "encouraging," but was not surprised by its strength. "We've got momentum," he said.

In what may be a bit of an understatement, the business group said: "The strength in December's data provides significant encouragement for prospects in the first quarter of 2004."

"Most notable about the upside was its deviation from the recently reported Chicago Purchasing Manager's Index report, which did report a slower pace of activity, albeit remaining at elevated levels," said Johnson.

The December Chicago index released on Tuesday registered 59.2, below analysts' forecast of 62 and also well below November's 64.1, which was a nine-year high.

The overall index has now risen six consecutive months with 17 of the 20 industries surveyed reporting growth.

Production also rose sharply to a reading of 77, from 68.3 in November. The employment index rose to 55.5, its second month above the level of 50, which indicates expansion.

"There will surely be an easing from the current pace of gains," said Johnson. "However, the level of activity appears poised to remain sustained, with key indicators of order backlogs and employment now rising very solidly."

Melcher echoed that view. "We've had the greatest stimulus in the last six months than we've ever had. Can manufacturing be sustained after the stimulus slows down? I don't think it means much for the future."