Factories grow at fastest pace in seven months

By Vicki Needham - 02/01/12 05:02 PM ET

The manufacturing sector grew at its fastest rate since last summer as new orders picked up pace, contributing to the economy's strong start this year.

The Institute for Supply Management said Wednesday that its manufacturing index increased last month to 54.1 percent from 53.1 percent in December, the 30th straight month of expansion and the best reading since June.

Readings above 50 indicate expansion.

New orders rose to 57.6 percent, an increase of 2.8 percentage points from December’s seasonally adjusted reading, reflecting the 33rd consecutive month of growth.

Prices of raw materials increased for the first time in the last four months.

U.S. stocks rose on U.S. and global manufacturing data, with growth in China and Germany, as well.

Production and employment continued growth, although at a slower pace. The production index increased to 55.7 percent in January, 3.2 percentage points less than December's reading of 58.9 percent, the 32nd consecutive month of expansion.

Employment was 54.3 percent in January, down slightly from 54.8 percent reported in December — the 28th consecutive month of growth.

Consumers are buying more cars and trucks, while businesses ordered more machinery and other equipment. That has driven manufacturing, which expanded for the 30th straight month.

Both new orders and order backlogs rose to nine-month highs. Increasing order backlogs suggest manufacturers are lacking the capacity to meet demand — that could mean more growth in production and employment in the near future, economists said.

Export orders also rose, a sign that U.S. manufacturers haven't yet been affected by Europe's slowing economy.

Meanwhile, a separate report from the Commerce Department showed that construction spending increased 1.5 percent in December, the fifth straight monthly gain. That pushed spending to a seasonally adjusted annual rate of $816.4 billion, the highest level in 20 months.

Despite still being mired in a depressed state, the housing sector is showing signs of life this year. Some housing experts say the sector has hit rock bottom and should show gradual improvement this year before accelerating in 2013.

During the last few months of the year, builders say they are more confident in the sector because of growing interest in purchases and a pick-up of construction.