TEMPE, Ariz.—American manufacturing expanded in December at the fastest pace in two years, reflecting firmer output and the biggest pickup in orders growth since August 2009.
The Institute for Supply Management said Jan. 3, that its index increased to 54.7, the fourth straight advance, from 53.2 a month earlier. The median forecast in a Bloomberg survey called for 53.8. Readings above 50 indicate growth. The ISM's measure of orders surged 7.2 points, while its gauge of prices paid for materials climbed to the highest level since June 2011.
The jump in bookings, including the strongest pace of export orders since May 2014, will help keep factories on solid footing early this year as business confidence improves. Plant managers responded to the brighter outlook by adding to staff at the fastest pace since the middle of 2015, according to the ISM's report.
Additional hiring and the pickup in inflation at the producer level help explain the Federal Reserve's decision last month to raise interest rates.
The ISM's index of prices paid climbed to 65.5 from a November reading of 54.5.
The group's gauge of new orders increased to 60.2 last month after 53 in November. The measure of orders for overseas customers rose to 56 in December from 52.
A rebound in export markets has helped give an added boost to U.S. factories following deceleration over the past couple years. Domestic companies have also made progress getting inventories more in line with demand and there are early signs corporate investment is beginning to firm.
To be sure, a rally in the dollar since the presidential election risks restraining overseas sales of U.S.-made goods.
The ISM's gauge of production increased to 60.3, the highest since November 2014, from 56 a month earlier.
A measure of factory employment picked up to 53.1 in December from 52.3 the prior month. The national payrolls report due Friday from the Labor Department is projected to show about 180,000 jobs were added in December, in line with the monthly average in 2016, according to the median estimate in a Bloomberg survey.
"Employment is pretty strong throughout the country, and that's certainly true for manufacturing," Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. Consumer confidence helped lift demand in the second half of last year, particularly after the election when "momentum built on itself," he said.
The ISM report also showed gauges of factory inventories shrank at a faster pace in December from a month earlier.