Chicago Purchasing Managers Index rises to 61.5
Companies in the U.S. expanded in January at the fastest pace in more than four years as orders and employment increased.
The Institute for Supply Management-Chicago Inc. said today its business barometer climbed to 61.5, the highest level since November 2005, from 58.7 last month. Readings greater than 50 signal expansion.
Government stimulus has spurred gains in demand here and abroad that are reducing inventories, paving the way for manufacturers to step up output. Ford Motor Co. is among companies that are beginning to hire again, setting the stage for stronger spending in coming months.
"Manufacturing production will see sturdy gains over the next few months as businesses boost output to replenish their inventories," Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania, said before the report. "Manufacturing is helping support the recovery, and conditions will remain favorable as final demand increases, exports gain momentum, and financial markets continue to heal."
Economists projected the Chicago index would drop to 57.2 from 58.7 in December, based on the median estimate of 52 projections in the Bloomberg survey. Forecasts ranged from 55 to 62.2.
More Orders, Jobs
The group's gauge of orders climbed to 66.4 from 64.4 the prior month and its measure of employment jumped to 59.8, the highest level since April 2005, from 47.6.
The index of production increased to 66.6 from 64.2 the prior month, while the gauge of inventories rose to 48.7 from 38.6, showing a diminishing pace of inventory drawdown.
Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy. The group has said its membership includes both manufacturers and service providers, making the gauge a measure of overall growth. Its members have operations across the country as well as abroad.
The Tempe, Arizona-based Institute for Supply Management's factory index probably rose this month to 55.6 from 54.9 in December, according to a survey median. That report is due Feb. 1.
The world's largest economy expanded at a 5.7 percent pace from October through December, its fastest growth in six years, the Commerce Department reported today. Economists surveyed this month forecast the world's largest economy will grow 2.7 percent this year.
Inventory Drawdown
Slower drawdown of inventories last quarter contributed 3.4 percentage points to growth. A gain in exports helped shrink the trade deficit, adding another 0.5 point, while consumer spending grew 2 percent, contributing 1.4 points to overall growth.
Another report showed consumers gained confidence this month. The Reuters/University of Michigan sentiment index increased to 74.4 in January, the highest level in two years.
Among companies hiring, Ford Motor Co. said Jan. 26 it will spend about $400 million and add 1,200 jobs at two Chicago plants to build a new, more fuel-efficient Explorer sport- utility vehicle. The program will be partly funded by an Energy Department program for advanced vehicle technology.
"This investment underscores Ford's commitment to building world-class, fuel-efficient vehicles in America and creating new jobs that will contribute to our nation's economic recovery," Mark Fields, the Dearborn, Michigan-based company's president for the Americas, said in a statement.
Growing Exports
Growing foreign demand is also helping U.S. manufacturers. Waltham, Massachusetts-based Raytheon Co., the world's largest missile maker, said fourth-quarter profit rose 20 percent on higher sales of the Patriot weapon system and repeated its 2010 earnings forecast.
"We did have a very strong year in international awards and we expect that to be the case as we go into 2010," Chief Financial Officer David Wajsgras said yesterday in a phone interview. Taiwan's order for Patriot missile systems and Japan's airborne radar systems were examples of foreign sales in the quarter, he said.