The AP (2/1, Rugaber) reported, “Factory activity expanded in January at the fastest pace in nearly seven years, as manufacturers reported a sharp jump in new orders.” The manufacturing activity index from the Institute for Supply Management reached 60.8 last month, marking the 18th straight month of expansion. “Consumers are spending more on autos, appliances and other goods, while businesses have invested in more industrial machinery and computers.” And, this level “of expansion is likely to continue in the coming months. Manufacturing firms surveyed by ISM said their backlog of orders jumped in January.” Exports also rose on higher overseas sales.

        Reuters (2/2) reports that inflation indicators rose with the growing factory activity. “All in all, the ISM report showed the trend in manufacturing output growth (and hiring) rising solidly at the beginning of 2011,” according to a research note from UBS Investment Research. Experts cautioned, however, “that the employment number is more about the willingness to hire, rather than an increase in the absolute numbers.” They added that, “while the prices paid index suggests higher input costs, the overall impact on consumer price inflation monitored by the Federal Reserve will remain muted as wage growth, a key driver of service costs, has remained moderate.”

        The Phoenix Business Journal (2/2) reports, “The January data from Tempe’s Institute for Supply Management show the US manufacturing sector reached its highest level of productivity since May 2004. The group’s manufacturing index hit 60.8 percent in January, up from December’s reading of 58.5 percent.” The article noted that, “of the 18 manufacturing industries tracked, 14 reported growth in January. Those with the strongest growth were petroleum and coal products; primary metals; and apparel. The four industries reporting contraction in January were textile mills; printing and related support activities; plastics and rubber products; and nonmetallic mineral products.”

        “Today’s ISM report on manufacturing clearly shows that momentum is again building for this sector, after somewhat slower growth in the fall due to the normal inventory swing, and that growth is being driven by improving demand,” Thomas J. Duesterberg, the head of the Manufacturers Alliance/MAPI, is quoted as saying in IndustryWeek (2/2, Selko). “Employment prospects are improving, but will be limited by the continuing productivity surge,” Duesterberg said. “Construction is still lagging, and limits demand for building materials and puts a damper on employment prospects. Overall, this report suggests that manufacturing will continue to lead the recovery at least through mid-year.”

        The Financial Times (2/1, Rappeport, subscription required) quotes Deutsche Bank strategist Alan Ruskin as saying, “This only confirms that the US is at the leading edge of the global pick-up in manufacturing.” Under the headline “Manufacturing Notches Strong Growth,” the Wall Street Journal (2/2, Lahart, Blackstone, subscription required) also reports the story.

        ISM Chairman: Manufacturers Can Prevent Raw Material Costs From Hurting Earnings. Bloomberg News (2/2, Willis) reports, “Manufacturers in the US will be able to prevent rising raw-material prices from hurting earnings in coming months, according to Norbert Ore, chairman of the Institute for Supply Management’s factory survey.” Ore said that “by combining some price increases with gains in productivity and growing sales, factories will be able keep profits climbing.” He added, “The challenge is going to be to offset the increase in commodity prices through either increased productivity, expanding volumes or price recovery. … You try to work all three of those levers. The net effect on profits, given the volumes we’re looking at and the amount of growth we’re seeing, shouldn’t present a problem in the first quarter.”