US manufacturers in rude health as purchasing managers' index shows strongest sector since 2014

 
Jasper Jolly
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US manufacturers reported an expanding sector in December (Source: Getty)

US manufacturing conditions smashed expectations in December, according to an important indicator, as data continue to show an economy in rude health ahead of the Presidency of Donald Trump.

The manufacturing purchasing managers’ index increased slightly to 54.7 in December, an increase of 1.5 percentage points since November, according to the Institute of Supply Management (ISM), which compiles the data.

The increase pushes US PMI to a two-year high, reflecting a similar PMI measure compiled by IHS Markit, which increased to 54.3. A PMI reading above 50 indicates expansion in the manufacturing economy.

Read more: US services PMI sees December slowdown but economy still healthy

The index of new orders increased by more than seven percentage points to post the highest reading for the year in December, while prices for raw materials increased by 11 percentage points.

Bradley J. Holcomb, ISM chair, said: “The PMI, new orders, production and employment indexes all registered new highs for the year 2016, and the forward-looking comments from the panel are largely positive.”

The decline of US manufacturing was a central plank of Trump’s election campaign, and his promises to resurrect US manufacturing have been credited in some quarters for his vital victories in states such as Michigan.

However, manufacturing confidence has increased for the past four months in a row to its highest point since late 2014.

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Paul Sirani, an analyst at Xtrade, said: “Last month’s rapid expansion has been followed by a remarkable two-year high and the US manufacturing sector appears to be in rude health.

The data add to the weight of evidence that the US economy is finally picking up speed. They will be watched closely by the US Federal Reserve, as the central bank anticipates three rate rises over the course of 2017.

“Although interest rates were only raised less than a month ago, additional positive news coming from the jobs market on Friday could leave analysts penning in another rate rise sooner rather than later,” said Sirani.

Dennis de Jong, managing director at UFX.com, said the data show a US economy “on a solid footing”.

“The bulk of US data points for the week ahead, including Friday’s all-important non-farm payroll data, look set to follow a similar trend – which will be music to the ears of Fed chair Janet Yellen,” he added.

Investors will gain an insight into her thinking when minutes from the last rate-setting meeting are released on Wednesday evening (7pm GMT).

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