US manufacturing gears up

City A.M. Reporter
The US manufacturing sector grew at its fastest pace in nearly seven years in January, in the latest sign the economic recovery is gaining traction.

The Institute for Supply Management's monthly manufacturing survey fits into a pattern of steadily improving data, although manufacturers’ input costs also jumped due to inflationary pressure.

Its report comes ahead of Friday's closely watched US payrolls report, which is expected to show the US economy added jobs for a fourth straight month.

"It's a good number," said Gary Thayer, chief macroeconomic strategist at Wells Fargo Advisors in St. Louis, Missouri. "Manufacturing is outperforming other parts of the economy, but we're also seeing some inflationary seeds in costs rising.

Underscoring the uneven nature of the recovery, however, a separate report from the US Commerce Department showed construction spend fell in December to its lowest level in more than a decade as housing continues to struggle.

The Federal Reserve has argued that continued asset purchases are needed under its $600bn (£377bn) programme support an economy that, while showing signs of improvement, is still far from full health.

The ISM manufacturing index climbed to 60.8 in January, the highest reading since May 2004 and well above analysts’ expectations. A reading above 50 indicates expansion.

The prices paid component of the index jumped to 81.5 from 72.5 the prior month, and the employment index reached its highest level since April 1973.

The most recent growth data showed the US economy gathered speed in the fourth quarter to regain its pre-recession peak with a big gain in consumer spending and strong exports.

The economy grew at a 3.2 per cent annual rate in the final three months of 2010, after expanding at a 2.6 per cent pace in the third quarter, the Commerce Department has said.