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US factory and private payrolls data point to firming economy

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WASHINGTON: US factory activity accelerated to more than a two-year high in January amid sustained gains in new orders and raw material costs, pointing to a recovery in manufacturing as domestic demand strengthens and the drag from low oil prices ebbs.


Other data on Wednesday showed private employers boosted hiring last month. While construction spending slipped in December, the underlying trend remained strong. The signs of strength in the economy at the start of the year were acknowledged by the Federal Reserve’s policy-setting committee.


At the end of its two-day meeting on Wednesday, the Fed said it expected that economic activity would expand at a “moderate pace,” and the labour market strengthen “somewhat further.”


The Institute for Supply Management (ISM) said its index of national factory activity increased 1.5 percentage points to a reading of 56.0 last month, the highest since November 2014 when oil prices started collapsing.


A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 per cent of the US economy. Some of the increase likely reflects a surge in business confidence following last November’s election of Donald Trump as president.


The ISM’s production sub-index increased 2.0 percentage points and a gauge of new orders edged up 0.1 percentage point, reaching its highest level in just over two years.


A measure of factory employment jumped 3.3 percentage points to its highest level since August 2014, suggesting factory payrolls likely rose in January for a second straight month.


Manufacturers reported paying more for raw materials. That was the 11th consecutive monthly increase, indicating inflation pressures at the factory gate could be building up. The ISM’s prices index jumped 3.5 percentage points in January to its highest level since May 2011.


The dollar rose against a basket of currencies on the data, but gave up some the gains following the Fed’s rate decision. Prices for US government bonds fell. US stocks were trading slightly higher, reversing earlier losses.


A collapse in oil prices in 2015 and a surge in the dollar weighed on manufacturing for much of last year, with most of the pain coming through sharp cutbacks in business spending on equipment. Oil prices have since risen above $50 per barrel, lifting some of the fog off manufacturing.


The government reported last Friday that business spending on equipment increased at a 3.1 per cent annualised rate in the fourth quarter, the first rise in over a year.


January’s data so far suggests that the economy is poised for an acceleration after gross domestic product increased at a 1.9 per cent annualised rate in the fourth quarter. The deceleration from the third quarter’s brisk 3.5 per cent pace reflected a wider trade deficit.


Separately on Wednesday, the ADP National Employment Report showed private employers added 246,000 jobs in January, up from 151,000 in December. The report, jointly developed with Moody’s Analytics, came ahead of the Labour Department’s more comprehensive employment report on Friday, which includes both public and private sector payrolls.


A third report from the Commerce Department showed construction spending slipped 0.2 per cent in December after shooting up 0.9 per cent in November. Construction spending increased 4.2 per cent from December 2015.


— Reuters


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