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Manufacturing ends 2012 up despite "cliff" fear

A machine that makes bubble wrap padded envelopes is pictured at the Wrap-Tite manufacturing facility in Solon, Ohio July 13, 2012. REUTERS/
A machine that makes bubble wrap padded envelopes is pictured at the Wrap-Tite manufacturing facility in Solon, Ohio July 13, 2012. REUTERS/

By Gabriel Debenedetti

NEW YORK (Reuters) - U.S. manufacturing ended 2012 on an upswing despite fears about the "fiscal cliff," data showed on Wednesday.

U.S. factories returned to growth in December after contracting the previous month, the Institute for Supply Management said.

Its index of national factory activity rose to 50.7 up from 49.5 in November, narrowly beating the consensus forecast in a Reuters poll. The ISM index had fallen to a 40-month low in November.

"What is interesting in this report is that you would think the negative headlines surrounding the fiscal cliff would have put pressure on manufacturing," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

ISM's employment index rose to 52.7 from 48.4 in November, while its forward-looking new orders component kept at 50.3.

A separate measure of manufacturing also showed growth.

Financial data firm Markit's U.S. Manufacturing Purchasing Managers Index picked up to 54.0 from 52.8 in November. This was its highest point since May on a final basis despite just missing its preliminary estimate of 54.2.

"With recent indications that growth is also picking up in other key economies around the world, notably in emerging markets such as China and Brazil, and that the euro zone's economic crisis is easing, U.S. companies should benefit as stronger demand lifts exports in early 2013," said Markit Chief Economist Chris Williamson.

A rise in new orders fueled the faster growth, as one in five companies reported an increase. The Markit index's new orders component rose to 54.7 from 53.6 in November, its quickest increase since April.

The growth in U.S. manufacturing came in the face of fears late last year over the "fiscal cliff" of tax hikes and spending cuts, which would have kicked in at the start of 2013, risking a new U.S. recession.

Lawmakers struck a deal late on Tuesday, avoiding income tax hikes for most Americans and delaying the spending cuts for two months.

U.S. stock prices surged at the open on the congressional action, while yields on U.S. government debt rose.

"Now that Congress has come to an agreement. ... We expect that new orders and overall activity in the sector will accelerate. However, we also expect that growth in the first quarter will be slow due to continued uncertainty over spending cuts and the debt ceiling," said Thomas Simons, vice president and money market economist at New York brokerage Jeffries, in a note.

Despite Tuesday's deal, Congress still must debate how to handle the automatic spending cuts and resolve differences over the federal debt ceiling which could result in a new round of political wrangling.

The deal is in line with what many financial firms on Wall Street and around the world have been expecting, suggesting forecasts for economic growth of around 1.9 percent for 2013 would likely hold.

Even as manufacturing grew, uncertainty remained for smaller businesses.

Borrowing by small U.S. businesses rose marginally in November, as the Thomson Reuters/PayNet Small Business Lending Index - which measures the overall volume of financing to small U.S. companies -- rose to 108.3 from a downwardly revised 107 in October, PayNet said.

"Small businesses were waiting to see what is happening with Washington. ... They were waiting for more consumer activity to emerge, really watching the front door for new sales to emerge and it doesn't look like any major new influx of sales came in - they have really been on hold," PayNet founder Bill Phelan said.

(Reporting by Gabriel Debenedetti; Additional reporting by Steven C. Johnson, Chris Reese, Julie Haviv, Jason Lange; Editing by Neil Stempleman)

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