US manufacturers increased production in December as a wave of new orders flowed in, an industry report showed today, suggesting the factory sector is well on its way to clawing out of a 17-month slump.
The Institute for Supply Management's monthly Purchasing Managers' Index rose for a second straight month, to 48.2 in December from 44.5 in November. The report surprised economists, who had expected a more sluggish rebound from the shock of the September 11th attacks.
The report showed factories faced the strongest flow of new orders since April 2000 and ramped up production even as they continued to shed unwanted inventories.
"This is a hugely encouraging report, pointing clearly to a vigorous recovery," said Mr Ian Shepherdson, chief US economist at High Frequency Economics.
A reading under 50 indicates the sector - about one-sixth of overall US economic activity - is contracting. The index has held below that watershed since August 2000, marking the most severe manufacturing slump since the 1990-1991 recession.
But the ISM index has rebounded sharply from a 10-year low of 39.8 in October. The New Orders Index, a crucial gauge of pipeline demand for factory goods, rose to 54.9 in December - its highest since April 2000 - from 48.8 in November.
The Production Index pushed above the 50 mark, to 50.6 from 47.1 in November, and the Inventories Index fell to 37.7 from 37.9 in November, indicating manufacturers cleared their shelves at an accelerated rate.
The ISM, formerly the National Association of Purchasing Management, compiles its index from surveys of purchasing and supply executives in over 400 companies in about 20 industries.