Manufacturing unexpectedly accelerated in November at the fastest pace in more than two years, pointing to a pickup in business spending that will help propel the U.S. economy in early 2014.
The Institute for Supply Management’s index rose to 57.3, the highest since April 2011, from 56.4 a month earlier, the Tempe, Ariz.-based group’s report showed Monday. Readings above 50 indicate growth. The median forecast in a Bloomberg survey of economists was 55.1. Measures of orders, production and employment strengthened.
Gains in home sales this year have led to more orders for home-related merchandise and construction equipment, benefiting companies such as Deere & Co. Further improvement in consumer demand and a rebound in business investment would provide an even bigger push for manufacturers.
“With the government shutdown over, with global growth picking up, we’ll see solid growth in manufacturing,” said Gus Faucher, senior economist at PNC Financial Services Group Inc. in Pittsburgh, whose firm projected an increase in the index to 56.7. “Demand generally is picking up – in Asia, in Europe – so that’s supporting manufacturing production in the United States.”
In the Buffalo Niagara region in October, the latest numbers available, manufacturing had its biggest monthly jump in 14 years. The business activity index of the National Association of Purchasing Management – Buffalo jumped to 66.1 during October, from 62.4 in September. It has been running ahead of the national average for eight months.
The national ISM measure has increased six straight months, the longest such stretch since the first 10 months of 2009, when the economy was emerging from recession. The gauge has averaged 56.6 over the past three months, the strongest since May 2011.
For manufacturers, it’s been “certainly a different second half from the first half – it’s meaningfully higher and stronger,” Bradley Holcomb, chairman of the supply management group’s factory committee, said on a conference call with reporters.
Manufacturing accounts for about 12 percent of the economy. Of the 18 industries covered, 15 reported expansion in November, led by plastics, textiles and furniture, the ISM said.
The ISM’s gauge of U.S. new orders rose to 63.6 last month, the highest since April 2011, from 60.6 in October. The measure has exceeded 60 for four straight months.
An index of production climbed to 62.8 from 60.8. The group’s factory employment measure increased in November to 56.5, the highest since April 2012, from 53.2, while the index of orders waiting to be filled rose to 54 from 51.5.
Export orders picked up for American factories as the global economy showed signs of strengthening. The ISM’s measure increased to 59.5 in November, matching the highest level since April 2011.
Manufacturing across the globe is showing signs of picking up. In China, factory growth was stronger than projected. The Purchasing Managers Index held at 51.4 in November, the highest since April 2012, the National Bureau of Statistics and China Federation of Logistics and Purchasing said.
Euro-area manufacturing output expanded more than initially estimated last month, led by Germany. Markit said its index rose to a more than two-year high of 51.6 from 51.3 in October. That compares with an initial estimate of 51.5 for November. In the U.K., the expansion at factories was the strongest since February 2011, according to Markit.
American manufacturers have been benefiting from the housing recovery, which has boosted demand for everything from heavy equipment to appliances.
Moline, Illinois-based Deere, the second-largest maker of construction equipment in the U.S. behind Caterpillar Inc., forecast better-than-expected earnings for its 2014 fiscal year as a stronger residential real-estate market spurs demand for its loaders and excavators.
“The economy continues slowly moving forward,” Susan Karlix, manager of investor relations, said on a call with analysts and investors late last month. “Although government construction continues to fall and the situation in Washington remains uncertain, we are beginning to see some positive indicators. Home sales and prices are improving and residential construction is growing.”