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Manufacturing growth accelerated in December, according to the ISM manufacturing index. The index rose to 60.7% in December, up from 57.5% in November; a reading of above 50 indicates expansion in the industry. This was the strongest growth in manufacturing since August 2018.

Manufacturing was flat in late 2019 and early 2020, and then contracted sharply in March through May as consumers stayed home, states implemented restrictions on economic activity, and factories shut down temporarily. But the ISM index has been above 50% since June, and was especially strong in December.

All five of the components used to calculate the overall index rose in December, and all were above 50%. New orders were especially strong, rising to 67.9% from 65.1%, pointing to continued expansion in early 2021. Supplier deliveries increased to 67.6% from 61.7% over the month, while production rose to 64.8% from 60.8%. Employment rose to 51.5% from 48.4%, suggesting solid industry job gains in December; this is the only the second time in the past 17 months that the employment indicator has been above 50%.

All six of the major manufacturing industries expanded in December: fabricated metals; computers and electronics; transportation equipment; chemicals; petroleum and coal; and food, beverages and tobacco. Sixteen of the 18 manufacturing industries covered reported growth over the months, with the biggest gains in apparel, furniture, and wood products. Printing and nonmetallic mineral products reported contraction.

Manufacturing activity expanded in December, even with coronavirus cases hitting record highs. Overall economic activity continues to improve, thanks to stimulus spending earlier in 2020, a very strong housing market, excellent consumer balance sheets, and very low interest rates. Manufacturing growth should continue in early 2021 with the new stimulus bill, the rollout of vaccines, and very low customer inventories that will need to be rebuilt.

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