US factory activity accelerates; construction spending at record high

[WASHINGTON] US factory activity increased more than expected in December, boosted by a surge in new orders growth, in a further sign of strong economic momentum at the end of 2017.

The economy's robust fundamentals were also underscored by other data on Wednesday showing construction spending rising to a record high in November amid broad gains in both private and public outlays.

The Institute for Supply Management (ISM) said its index of national factory activity jumped to a reading of 59.7 last month from 58.2 in November. A reading above 50 indicates growth in manufacturing, which accounts for about 12 per cent of the US economy.

The survey's production sub-index rose 1.9 points to a reading of 65.8 and a gauge of new orders shot up 5.4 points to 69.4. Manufacturers also reported an increase in export orders. A measure of factory employment, however, fell to 57.0 last month from 59.7 in November.

Manufacturing is likely to get a boost this year from a US$1.5 trillion tax cut approved by the Republican-controlled US Congress last month. The overhaul of the tax code, the most sweeping in 30 years, slashed the corporate income tax rate to 21 per cent from 35 per cent.

Business spending surged in anticipation of the corporate tax cuts. Recent weakness in the US dollar and a strengthening global economy are expected to buoy exports of US-made goods, which would underpin manufacturing.

The US dollar rose against the euro and yen after Wednesday's data. US stock indexes hit new record highs, while prices of US Treasuries were mixed.

In a separate report on Wednesday, the Commerce Department said construction spending rose 0.8 per cent to an all-time high of US$1.257 trillion in November. Construction spending advanced 2.4 per cent on a year-on-year basis.

The manufacturing and construction reports added to data ranging from the labor market to housing and consumer spending in sketching a robust picture of the US economy.

Gross domestic product estimates for the fourth quarter are converging around a 2.8 per cent annualised rate. The economy grew at a 3.2 per cent pace in the third quarter.

In November, spending on private residential projects soared 1.0 per cent to the highest level since February 2007 after rising 0.3 per cent in October. The increase was in line with a recent jump in homebuilding and supports the view that housing would boost economic growth in the fourth quarter after acting as a drag on gross domestic product since the April-June period.

Spending on nonresidential structures rebounded 0.9 per cent in November after falling 0.2 per cent in the prior month. Overall, spending on private construction projects climbed 1.0 per cent in November to a record high. That followed a 0.3 per cent increase in October.

Outlays on public construction projects rose 0.2 per cent in November after jumping 3.5 per cent in October. Spending on state and local government construction projects rose 0.7 per cent. Federal government construction spending tumbled 4.8 per cent.

REUTERS