WSJ: Factories Hum as New Orders Jump

For Immediate Release:

January 4, 2012

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By Josh Mitchell and Kate Linebaugh
Wall STreet Journal

U.S. manufacturing grew at its fastest pace in six months in December, and producers appeared poised to keep boosting output to replenish empty shelves in coming months.

The Institute for Supply Management's closely watched index of factory activity rose to 53.9 last month, up from 52.7 in November and its best showing since June. Readings over 50 indicate expansion on the 100-point scale.

Investors were cheered by signs that U.S. factories were gaining strength, pushing the Dow Jones Industrial Average up 179.82 points, or 1.47%, to 12397.38.

A range of industries showed strength, from automobiles to food and beverage products to petroleum and coal. Economists said details in the report hinted at continued growth, at least in the near term: A measure of new orders jumped to its highest level since April, while 25% of respondents said their inventories were "too low" in December, compared with 19% the month before.

"It looks better than what most people" have been fearing, said Brian Bethune, a visiting economics professor at Amherst College in Amherst, Mass. He said many businesses' inventories were still lean, as they became more cautious last summer amid fears the U.S. might be near another recession. But with those concerns eased, businesses are restocking.
Novelis, the Atlanta-based U.S. subsidiary of Indian aluminum maker Hindalco Industries Ltd., is one of the companies rushing to boost output. The company, which has 30 plants in 11 countries, is in the midst of a three-year program to increase capacity by roughly a third.

Novelis Chief Executive Phil Martens said, "We're going to continue to expand where we see long-term, indigenous, organic growth." The company is benefitting from the trend of auto makers using more aluminum to make cars lighter and increased demand for aluminum beverage cans in emerging economies.

Stronger demand is translating into jobs. Within the report from the Institute for Supply Management, a measure for hiring jumped to 55.1 in December, up from 51.8 in November. That tracks with other recent gains in the broader jobs market. The U.S. unemployment rate dropped in November to 8.6% from 9% the previous month, as hiring by private employers offset job cuts by state and local governments.

Construction Spending Increases

American International Manufacturing Co., a Woodland, Calif., maker of conveyor systems and other food-processing equipment, recently hired three fabricators to respond to an uptick in sales, bringing the staff to 33.

The firm has had more orders from factories overseas, including in emerging markets such as Chile, said Leslie Besseghini, company vice president. The agriculture industry "is good and the U.S. dollar is weak," she said. "People are building plants where before they were sending their walnuts out to be processed somewhere else."

Even so, manufacturing reports from many other parts of the world remained mixed. China and Japan both notched slight expansions in manufacturing during December, after contracting in both nations in November. Most of Europe, meanwhile, saw manufacturing continue to contract in December—but at a slower pace than in November.