Purchasing Index Rises Unexpectedly

WASHINGTON — Business at U.S. manufacturers improved in December, according to a survey of purchasing managers released Thursday, as both orders and prices rose, a sign the economy may be gaining strength.

The National Assn. of Purchasing Management index unexpectedly rose to 54.0 last month from 52.7 in November. The December reading indicates the 11th consecutive month of growth and is the highest reading since June. A reading of 50 or more means manufacturing is expanding, whereas one below that signals a slowdown. Analysts surveyed by Bloomberg Business News had expected the index to fall to 52.0.

In another sign of economic strength, the Conference Board measure of help-wanted advertising rose in November, the business research group reported on Thursday.

“I think everyone had discounted too much all the good news about the economy,” said Kevin Flanagan, money market economist for Dean Witter Reynolds Inc. “Growth will come in stronger than expected, though not runaway growth or inflation.”

The reports startled the markets, sending stock and bond prices lower in a volatile session.

The manufacturing report, which offers the first broad glimpse of the economy each month, is also the first major indicator to be released in 1997.

Most economists had expected a reading of 51.5 for December.

“Overall, it’s a healthy number, and compared to expectations it’s a surprise,” said Raymond Worseck, chief economist at A.G. Edwards & Sons Inc. “The economy has a reasonable rate of momentum going into 1997.”

On Tuesday, the Commerce Department reported that new-home sales in November made the greatest advance in 3 1/2 years, and the Conference Board reported that consumer confidence surged to a seven-year high in December.

So far, most price increases have been absorbed by manufacturers and retailers and not passed on to consumers, helping to keep a lid on retail price inflation.

But bond market investors, keenly sensitive to any signs of inflation, sent bond prices tumbling Thursday after the report. The yield on the bellwether 30-year Treasury bond rose to 6.74% on Thursday, up from 6.64% on Tuesday.

The rise in yields helped drive stocks lower. The Dow Jones industrial average was down as much as 95 points early in the session Thursday, but recouped most of its loss, closing at 6,442.49, off 5.78 points. Stock investors had been nervous Thursday since the Dow had made a 101-point slide Tuesday.

In its report, the purchasing management group said 13% of purchasing managers reported paying higher prices in December, 13% reported paying lower prices and 74% said prices were unchanged from November.

The group’s members buy goods ranging from cardboard to computer chips and other finished and raw materials for the nation’s major corporations.

Economists noted that the markets largely ignored a report pointing to weakness in labor markets.

The Labor Department reported Thursday that the number of Americans filing new claims for unemployment benefits climbed last week to the highest level since mid-July.

But the Conference Board said Thursday that its help-wanted advertising index rose 3 points to 85.0 in November. In the last three months, the number of help-wanted ads increased in eight of the nine U.S. regions.

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Purchasing Managers’ Index

The index tracks overall business activity of more than 300 industrial companies. A rating above 50% indicates an expanding manufacturing economy.

Dec. 1996: 54%

Source: National Assn. of Purchasing Management