By Bob Willis(Bloomberg)
Manufacturing expanded in December at the fastest pace in more than three years, capping a 2009 rebound that helped pull the U.S. out of the worst recession since the 1930s.
The Institute for Supply Management’s factory index rose to 55.9, the highest level since April 2006, according to the Tempe, Arizona-based group. Readings greater than 50 signal expansion.
Factories may keep ramping up production as a record reduction in inventories and a stimulus-driven rebound in global demand boost orders. After cutting payrolls by 4.1 million workers in the first 11 months of last year, employers such as Caterpillar Inc. may need to bring back staff, giving incomes a boost and fueling a self-sustaining recovery in 2010.
“With inventories still falling across much of the globe, manufacturing is well positioned for growth in coming months,” Bruce Kasman, chief economist at JPMorgan Chase & Co. said in a note to clients before the report.
Stocks rallied after the report, extending earlier gains. The Standard & Poor’s 500 Index was up 1.2 percent to 1,128.74 at 10:17 a.m. in New York.

Global Rebound

Industry is in a global rebound. Chinese manufacturing expanded in December by the most in five years, and India’s factories also grew at a faster pace, according to surveys released today by HSBC Holdings Plc and Markit Economics.
The ISM index is up 23 points from a 28-year low of 32.9 reached in December 2008, after the collapse of Lehman Brothers Holdings Inc. caused credit markets to freeze. The advance is the biggest annual gain since 1983.
The ISM’s production index climbed to 61.8 from 59.9, and the new orders index rose to 65.5, the highest level in five years, from 60.3.
A gauge of export orders decreased to 54.5 from 56. The employment index rose to 52 from 50.8.
The index of prices paid increased to 61.5 from 55.

Deliveries, Backlogs

The supplier delivery gauge, a measure of the time it takes to receive goods, advanced to 56.6 from 55.7 the prior month. The measure of orders waiting to be filled decreased to 50 from 52.
The inventory index improved to 43.4 from 41.3. A figure below 50 means manufacturers are reducing stockpiles.
Government-assisted rebounds in housing and auto-making, two of the most depressed areas during the recession, contributed to the initial burst of activity in recent months. Economic growth may be helped in coming months by companies rebuilding inventories.
Employers probably cut fewer jobs in December and may begin to hire after almost two years of job losses. Economists surveyed by Bloomberg forecast payrolls last month fell by 5,000 after a loss of 11,000 in November. The Labor Department’s report is due Jan. 8.
The world’s largest economy expanded at a 2.2 percent pace from July through September after a yearlong contraction that was the worst since the 1930s, figures from the Commerce Department showed last month. Economists surveyed by Bloomberg last month forecast growth to pick up to a 3 percent pace in the fourth quarter and average 2.6 percent for all of 2010, according to the median estimate.

More Exports

As the global economy rebounded, exports rose for the sixth consecutive month in October. A 13 percent drop in the dollar since March 5 against a basket of six major currencies also makes American goods more competitive to overseas buyers.
With orders rising, manufacturers are hiring again. Caterpillar Inc., the world’s largest maker of bulldozers and excavators, will bring back some laid-off workers next year as sales improve, said Chief Executive Officer Jim Owens.
“We’ll gradually begin to call people back and to rebuild our overall sales and ability to ship product,” Owens said in an interview Dec. 11 with Bloomberg Television. “I think it will gradually begin to pick up as 2010 unfolds.”
Caterpillar cut about 18,700 full-time jobs and about the same number of temporary workers since December 2008 as the global recession reduced demand. The Peoria, Illinois-based company predicts 2010 sales will increase as much as 25 percent from the midpoint of the 2009 forecast range.

–With assistance from Will Daley in Chicago, Betty Liu in New York and Connie Guglielmo in San Francisco. Editor: Carlos Torres

To contact the reporter on this story: Bob Willis in Washington at +1-202-624-1837 or bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at +1-202-624-1862

If you enjoyed this post then Subscribe to Savvy Investor via RSS