Tempe, AZ, Jan. 2--Tthe manufacturing sector grew for a sixth straight month in December, turning in its best performance in 20 years, the Institute for Supply Management reported Friday.
Much of that strength came from new orders but employment, long a concern for the sector, also improved.
The ISM's purchasing-managers index, a gauge of overall activity in the sector, climbed to 66.2 from 62.8 in November. That was the best reading since December 1983. Readings above 50 point to expansion in the sector, while those below 50 indicate contraction.
Economists had expected the index to come in at 61, according to a survey by Dow Jones Newswires and CNBC.
"The strength in December's data provides significant encouragement for prospects in the first quarter of 2004," said Norbert J. Ore, chairman of the ISM's manufacturing-business survey committee, in a prepared statement.
If December's 66.2 reading were to be maintained for an extended period of time, it would be consistent with an 8.6% annualized increase in U.S. gross domestic product, the private research group said.
Much of the momentum in December came from new orders, Ore said. The survey's new-orders index jumped to 77.6, the best reading since July 1950, from 73.7 a month earlier. That index stood at 64.3 in October.
But the employment index also rose, climbing to 55.5 from 51.
A few months ago it seemed that companies "had made significant cuts and would be slow to hire back," Ore said in a conference call with reporters. "The opposite is the case," he said, noting that manufacturers have actually been "fairly quick to hire back."
The employment component suggests that the economic upswing "has reached the point where it will create jobs in manufacturing," wrote John Ryding, chief market economist at Bear Stearns, in a note to clients. The sector has been the big drag on payrolls since the recession began in March 2001, and Ryding said if manufacturing is "swinging from layoffs to job creation, the outlook for employment in 2004 is likely to be considerably brighter than the employment picture in 2003."
The December unemployment report is due out Jan. 9.
The ISM also reported an index measuring factory production rose to 73 from 68.3. Of the 20 industries making up the sector, 17 reported growth, led by instruments and photographic equipment, leather and furniture.
