Manufacturing index drops in December

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Slower global growth, reduced commodity prices and a slowdown at West Coast ports were cited as factors in a decline in manufacturing growth in December.

The headline Purchasing Managers Index dropped from 58.7 in November to 55.5 in December, its lowest level in six months.

Though disappointing, it is noteworthy that the lower figure followed several months of “very healthy expansions” in new orders and production, according to the National Association of Manufacturers, which referenced the Institute for Supply Management for the new data.

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Gross domestic product growth increased by 5 percent, instead of earlier estimates of 3.9 percent — its fastest quarterly pace in 11 years.

Manufacturers also were more upbeat at the end of 2014 than they were earlier in the year, according to a National Association of Manufacturers report that cited Purchasing Managers Index data rising by 3.7 percentage points, from 54 in the first half of the year to 57.7 in the second half.

In general, the U.S. economy continues to fare better than the economies of other countries. Among other things, this can be seen in foreign exchange markets, with the U.S. dollar reaching an 11-year high against major currencies on Friday, National Association of Manufacturers chief economist Chad Moutray wrote.

In December, manufacturers in China reported their first contraction in activity since May, with the HSBC China Manufacturing PMI dropping from 50 in November to 49.6 in December. Meanwhile, demand and output remained quite sluggish in Europe, even as the Markit Eurozone Manufacturing PMI improved a bit from 50.1 to 50.6.

These reports diverged from domestic data. Recent surveys — including the NAM/IndustryWeek survey — indicate relative optimism moving forward.

Manufacturing construction spending edged up in November, rising to its highest level since June 2009. More important, dollars devoted to construction in the sector have risen sharply year-over-year, up 21.1 percent since November 2013. This suggests that manufacturing leaders are more confident about making investments in their companies, mirroring the stronger employment index seen in the ISM report discussed above, Moutray wrote.

Moreover, the public is also more upbeat. The Conference Board’s consumer confidence index rebounded in December, even as it remained below its October peak. Lower gasoline prices probably have helped to improve perceptions about the current economic environment, outweighing lingering worries about labor market and income growth.

Job data on Friday are expected to extend strong numbers seen in November.

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