Manufacturing expanded slightly in December, bouncing back from an unexpected contraction the prior month, according to an industry report released on Wednesday.
The Institute for Supply Management (ISM) said its index of national factory activity in December rose to 50.7 from 49.5 in November. The reading narrowly beat 50.3, the median expectation of 55 economists polled by Reuters.
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A reading above 50 indicates expansion in the sector.
While the index recovered from the 40-month low hit in November, it was well off the 54.1 reading seen in January 2012, suggesting manufacturing was still struggling to regain the momentum it had at the start of last year.
The employment index rose to 52.7 in December from 48.4, while the forward-looking new orders component was steady at 50.3. Prices paid jumped to 55.5 from 52.5, beating expectations of 51.5.
CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:
"ISM is about as expected, it's a little better than in November, it is above 50 again, so on balance its pretty good news. There was no movement in new orders, the index was unchanged, production was a little bit weaker, but it's nice to see the employment component back above 50."
"It was pretty unlikely that businesses were going to start gearing up in December give that the debate over the "fiscal cliff" was still ongoing. We might see some improvement in January. I think though, given that there is going to be a pretty nasty fight over the budget in the next two months I'm not expecting a strong rebound."
GARY THAYER, CHIEF MACRO STRATEGIST, WELLS FARGO ADVISORS, St. LOUIS, MISSOURI:
"The index shows manufacturing firming up a little bit at the end of the year, suggesting manufacturing conditions are stabilizing.
"The last-minute deal to avoid the fiscal cliff will be a positive for the U.S. economy. The uncertainty we saw late in 2012 was a headwind for the economy and those headwinds will probably be a little bit lighter for the start of the year."
TODD SCHOENBERGER, MANAGING PARTNER AT LANDCOLT CAPITAL IN NEW YORK
"Anything above 50 for ISM is a good sign, we already know that. But what's refreshing is that because of the fiscal cliff deal, we can turn our focus to the macro headlines.
"Our attention is turning to the health of the economy, which remains fragile, especially since we'll soon be talking about the debt ceiling, and there will be a lot of uncertainty about that."
BONDS: U.S. bond prices steady at lower price levels. STOCKS: U.S. stocks extended gains after lawmakers reached a deal to avoid massive tax hikes and spending cuts.
(Americas Economics and Markets Desk; +1-646 223-6300)