AP News

Ahead of the Bell: US Manufacturing

WASHINGTON (AP) — U.S. manufacturing likely expanded a bit in December after shrinking the previous month, a sign that factories are doing little to promote greater economic growth.

Economists forecast that the Institute for Supply Management's manufacturing index rose to 50.5 from 49.5 in November.

Readings above 50 indicate expansion. The ISM will release the report at 10 a.m. EST on Wednesday. The ISM is a trade group of purchasing managers.

In November the ISM's manufacturing index fell to its lowest level since July 2009, one month after the recession ended. Measures of new orders and employment both dropped sharply.

A big reason for the poor showing was that businesses were concerned about the tax increases and spending cuts due to take effect in early 2013. Their business customers were reluctant to order more goods until the so-called fiscal cliff was resolved.

Consumer confidence also fell sharply in December, as Americans worried about the potential tax hikes. That may have slowed the purchases of cars and other manufactured items.

Companies have also been cutting back on their stockpiles of goods, after rebuilding them significantly in the July-September quarter. That's also holding back demand for manufactured goods.

There have been some positive signs for factory output. In November, companies substantially increased their orders for a category of large equipment that reflects their investment plans. That followed a big increase in the same category in October.

The economy grew at a 3.1 percent annual rate in the July-September quarter, much better than the 1.3 percent pace in the April-June quarter. But economists expect growth will slow in the current quarter, partly because of uncertainties surrounding the so-called fiscal cliff, to below a 2 percent pace.

And even with the agreement late Tuesday to avoid some aspects of the fiscal cliff, some taxes will likely go up. A 2 percentage point cut in Social Security taxes would expire, slowing growth in the January-March quarter next year to as low as 1 percent at an annual rate.

The Good Business Issue
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