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Manufacturing index ticks upward from 3-year low

| Thursday, Jan. 3, 2013, 12:01 a.m.

Manufacturing expanded in December at a pace that shows the industry is stabilizing upon reaching a three-year low a month earlier.

The Institute for Supply Management's manufacturing index climbed to 50.7 last month from November's 49.5, which was the weakest since July 2009, the Tempe, Ariz.-based group's report showed on Wednesday. Fifty is the dividing line between expansion and contraction. The median forecast of economists surveyed by Bloomberg called for a rise to 50.5.

Sustained growth, in part due to a housing rebound, and steadying overseas markets are helping underpin factory orders and keeping manufacturing from faltering. While lawmakers moved to extend tax cuts for about 99 percent of households, corporate confidence in the expansion will take time to build as Congress prepares to debate spending cuts and the debt ceiling.

“We finished the year on an uptick, but there isn't a firm rebirth of confidence on the part of businesses,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, who projected 51 for the December factory index. “We could face a little bit of a bumpy period before turning to slow growth in manufacturing.”

The median forecast was based on projections from 71 economists in the Bloomberg survey. Estimates ranged from 48 to 52. For all of last year, the factory gauge averaged 51.7, down from 55.2 in 2011 and 57.3 in 2010.

“We can take away a lot of positives from the December report,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. The step taken to avoid the so-called fiscal cliff “is positive news” and “bodes well for manufacturing.”

The ISM's production index decreased to 52.6 from 53.7. The new orders measure held at 50.3, and the gauge of export orders rose to a seven-month high of 51.5 from 47.

The employment gauge increased to 52.7, the highest since September, from 48.4 in the prior month.

The measure of orders waiting to be filled rose to 48.5 from 41. The inventory index fell to 43 from 45, while a gauge of customer stockpiles rose to 47 from 42.5. A figure higher than 50 means manufacturers are building stockpiles.

The index of prices paid climbed to 55.5 from 52.5.

Elsewhere, U.K. manufacturing unexpectedly grew in December at the fastest pace in 15 months. A gauge of factory activity rose to 51.4 from a revised 49.2 in November, Markit Economics and the Chartered Institute of Purchasing and Supply said in London Wednesday.

In the euro-area, manufacturing continued to shrink. Markit's gauge eased to 46.1 last month from 46.2 in November.

Indexes for Germany, France and Italy all remained below 50 last month.

Manufacturing in the United States, which accounts for about 12 percent of the economy, was at the forefront of the recovery that began in June 2009.

Recent regional reports show a mixed picture. Manufacturing in the Philadelphia area unexpectedly expanded in December to an eight-month high, but New York-region factories shrank for the fifth consecutive month.

The automobile industry remains one source of growth. Cars and light trucks sold at a 15.5 million annual rate in November, the most since February 2008, boosted in part by buyers replacing cars damaged by Superstorm Sandy, according to data from Ward's Automotive Group.

An improving housing market is helping manufacturers such as Illinois Tool Works Inc., a maker of welding equipment, construction supplies and auto parts. Homebuilding outlays increased 0.4 percent in November to a $295.3 billion annual rate, the most in four years, a report Wednesday from the Commerce Department showed.

The pickup in homebuilding failed to offset declines in non-residential building and public works as construction spending fell 0.3 percent in November after a 0.7 percent gain, the agency said.

“On the construction side, certainly we do expect housing starts to get better from where they've been,” Ronald Kropp, chief financial officer of Glenview, Ill.-based Illinois Tool Works, said on a Dec. 14 conference call with analysts.

“Offsetting that is more than 50 percent of our construction business is outside of the U.S., and Europe and Australia, which is a big piece of it, is still slowing or negative. So, there are some upsides on the U.S. side from residential, but offset by international.”

American manufacturers are more optimistic about the outlook for sales and spending this year than service providers, signaling that factories will support the economic expansion after they slumped in recent months, according to a survey released Dec. 11 by the ISM group.

Purchasing managers at factories anticipate sales will grow 4.6 percent in 2013 and business investment will increase 7.6 percent, the report showed. By comparison, service providers estimate revenue will grow 4.3 percent this year and that capital spending will rise 7 percent, the ISM said.

There are also signs that the worst of the slowdown in overseas markets is over. China's manufacturing expanded at the fastest pace in 19 months in December, boosting optimism that a recovery in the world's second-biggest economy is gaining traction, according to data this week.

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