LITTLE ROCK — Companies in the U.S. expanded in December at the fastest pace in almost four years, signaling the economic recovery is gaining speed heading into 2010, the Institute for Supply Management-Chicago Inc. said Wednesday.
Stimulus programs and discounting have propelled a rebound in global sales that is reducing stockpiles, which may spur manufacturers to further increase production in coming months. Caterpillar Inc. is among the companies that may recall dismissed staff, pointing to gains in employment that will drive consumer spending, which accounts for 70 percent of the economy.
“Manufacturing is now moving into recovery,” said David Sloan, senior economist at 4Cast Inc. in New York. “Inventories are rebuilding and exports are looking strong, with the Asian economies looking firmer and the dollar weak.”
The Institute for Supply Management’s barometer rose to 60, exceeding the most optimistic estimate of economists surveyed by Bloomberg News and the highest level since January 2006. The gauge, in which readings greater than 50 signal expansion, indicated companies boosted production and employment as orders climbed.
Stocks drifted Wednesday in a narrow range between gains and losses. The Dow Jones Industrial Average rose3.10 points, or less than 0.1 percent, to 10,548.51.
Economists projected the Chicago index would drop to 55.1 from 56.1 in November, based on the median estimate of 53 projections in the Bloomberg survey. Forecasts ranged from 52 to 58.5.
The group’s gauge of orders climbed to the highest level in more than two years and its measure of employment showed growth for the first time since November 2007, the month before the recession began. Indexes of production and order backlogs also improved.
Caterpillar, the world’s largest maker of bulldozers and excavators, will recall some laid-off workers next year as sales improve, said Chief Executive Officer Jim Owens.
“We’ll gradually begin to call people back and to rebuild our overall sales and ability to ship product,” Owens said Dec. 11. “I think it will gradually begin to pick up as 2010 unfolds.”
Caterpillar had cut about 18,700 full-time jobs and about the same number of temporary workers since December 2008 as the global recession reduced demand. The Peoria, Ill.-based company predicts 2010 sales will increase as much as 25 percent from the midpoint of the 2009 forecast range.
In January, Caterpillar announced plans to spend $140 million to convert the 700,000-square-foot former Deluxe Video plant in North Little Rock into its North American headquarters for the production of road graders. The plant will have 600 employees, Caterpillar said.
Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy. The group has said their membership includes both manufacturers and service providers, making the gauge a measure of overall growth.
The Tempe, Ariz.-based Institute for Supply Management’s factory index likely rose this month to 54 from 53.6 in November, according to a survey median. That report is due Monday.
The world’s largest economy expanded at a 2.2 percent pace from July through September after a year-long contraction that was the worst since the 1930s, figures from the Commerce Department showed last week.
Exports rose for the sixth month in October as economies worldwide rebounded from the global economic slump. A 13 percent drop in the dollar since March 5against six major currencies also made American goods more competitive to overseas buyers.
Inventories at U.S. companies rose in October for the first time in more than a year, the government said Dec. 11, a sign firms are boosting production in line with rising sales.
United Parcel Service Inc. CEO Scott Davis said Dec. 2 that shipping demand was starting to improve as companies rebuild inventory and consumers began Christmas shopping. UPS, the world’s largest package-delivery company, is considered a bellwether for the economy because it handles goods from auto parts to electronics to clothing.
“Inventory has gotten real low,” Davis said. “We think there will be some replenishment of inventories going forward, so the outlook is much better.”
Business, Pages 23 on 12/31/2009