A report released by the Institute for Supply Management on Tuesday showed an unexpected acceleration in the pace of growth in U.S. manufacturing activity in the month of December.
The ISM said its manufacturing PMI climbed to 60.7 in December after dipping to 57.5 in November, with a reading above 50 indicating growth. Economists had expected the index to edge down to 56.6.
With the unexpected increase, the manufacturing index reached its highest level since hitting 61.3 in August of 2018.
“Manufacturing performed well for the seventh straight month, with demand, consumption and inputs registering strong growth compared to November,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.
However, he added, “Labor market difficulties at panelists’ companies and their suppliers will continue to restrict the manufacturing economy expansion until the coronavirus (COVID-19) crisis ends.”
The unexpected increase by the headline index came as the new orders index rose to 67.9 in December from 65.1 in November, while the production index jumped to 64.8 from 60.8.
The employment index also climbed to 51.5 in December from 48.4 in November, indicating a return to job growth in the manufacturing sector.
At the same time, the report showed the supplier deliveries index surged up to 67.6 in December from 61.7 in November, suggesting deliveries slowed at a faster rate.
“The Supplier Deliveries Index reflects the difficulties suppliers continue to experience due to COVID-19 impacts,” said Fiore.
On the inflation front, the prices index spiked to 77.6 in December from 65.4 in November, reaching its highest level since May of 2018.
“Manufacturing fared fairly well in 2020 but, looking ahead, the recovery’s evolving dynamics will cause factory activity to grow more slowly in 2021,” said Oren Klachkin, Lead U.S. Economist at Oxford Economics.
He added, “Factories will face headwinds from the virus’ recent resurgence, slower economic recovery, and ongoing supply chain disruptions and shortages.”
The ISM is scheduled to release a separate report on Thursday on activity in the service sector in the month of December. The services PMI is expected to slip to 54.5 in December from 55.9 in November.