US factories grew in December at fastest pace since mid-2018

Business

MARIETTA, OH – OCTOBER 25: Employees work on building pipe at Pioneer Pipe on October 25, 2016 in Marietta, Ohio. The construction, maintenance and fabrication company employs around 800 people, supplying products to the oil and gas industry. (Photo by Spencer Platt/Getty Images)

WASHINGTON (NewsNation Now) — American factories grew in December at the fastest pace in more than two years as manufacturing continued to weather the pandemic better than the battered services sector.

The Institute for Supply Management reported Tuesday that its gauge of manufacturing activity rose to 60.7% last month, the highest reading since it stood at 60.8 in August 2018. The activity gauge was up 3.2 percentage points from a November level of 57.5.

Any reading above 50 indicates expansion in the manufacturing sector.

Manufacturers across Europe ended 2020 on a high note, while Asian factory activity expanded moderately thanks to robust demand in regional giant China.

The U.S. economy collapsed from April through June but since that time manufacturing has posted solid gains while the services sector, which includes restaurants, bars and the travel industry, has been harder hit.

Timothy Fiore, chair of the ISM manufacturing committee, said that while manufacturing has recovered since spring, it continues to face virus-related headwinds, such as factory shutdowns needed to sanitize facilities and difficulties in hiring new workers.

Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said that activity at U.S. factories in coming months would be exposed to “broadening containment measures that could disrupt and weigh on demand in the U.S. and abroad.”

Line workers work on the chassis of full-size General Motors pickup trucks at the Flint Assembly plant on June 12, 2019 in Flint, Michigan. (JEFF KOWALSKY/AFP via Getty Images)

General Motors reported Tuesday that sales jumped 5% in the final quarter of 2020, its best fourth-quarter performance in retail sales since 2007, with deliveries up 12%. With spring included, however, retail deliveries for GM dropped 6% in 2020.

“Global manufacturing was still on a roll until the middle of December which is a very good basis for an economic rebound once the current wave of the pandemic subsides,” said Holger Schmieding at Berenberg.

“We may have a modest setback in January as renewed lockdowns affect manufacturing but with China remaining fairly strong and the U.S. not showing significant signs of a consumer slowdown the outlook for manufacturing is still good.”

The prospect of tougher restrictions to quell global coronavirus infection spikes could possibly hurt large exporters such as China and Germany.

Activity in eurozone manufacturing increased at its fastest pace since mid-2018 last month, suggesting the bloc’s economy was less hard hit by the pandemic than earlier in the year.

IHS Markit’s final eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 55.2 in December from November’s 53.8, although that was below the initial 55.5 “flash” estimate.

Anything above 50 indicates growth, and December was the highest reading since May 2018. An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good guide to economic health, rose to 56.3 from 55.3.

Germany was again the bloc’s driving force and in contrast to the dominant service industry — which has been badly impacted by lockdown measures to tackle the coronavirus — factories in the region have mostly remained open.

Britain’s PMI bounced to a three-year high of 57.5, but that surge was likely in large part due to factories rushing to complete orders before the U.K.’s transition period on its way to leaving the European Union ended.

Manufacturing activity expanded in Japan, South Korea and Taiwan, according to PMI surveys, the latest indication manufacturers in Asia continue to bounce back from the damage caused by the COVID-19 pandemic last year.

HANGZHOU, CHINA – JUNE 24: (CHINA OUT) Employees work at a garment factory which provides Original Equipment Manufacturing (OEM) for US and European companies on June 24, 2008 in Hangzhou of Zhejiang Province, China.
(Photo by China Photos/Getty Images)

But a slowdown in China’s factory activity growth underscored the challenges. China’s Caixin/Markit PMI fell in December to 53.0 – its lowest level in three months – but stayed well above the 50 level.

“External demand was likely impacted by the continued global spread of COVID-19 and reimplementation of lockdowns,” HSBC’s China economist Erin Xin said in a research note.

The reading, lower than November’s 54.9, fell roughly in line with the official gauge of factory activity that showed activity moderating at a high level.

Elsewhere, output stabilised in Japan for the first time in two years, while India’s factory sector ended a rough 2020 on a stronger note as manufacturers boosted production to meet rising demand.

The Associated Press and Reuters contributed to this report. All reporting by Jonathan Cable and Leika Kihara of Reuters and AP writer Martin Crutsinger.

© 1998 - 2021 Nexstar Inc. | All Rights Reserved.