After the production outages caused by Hurricane Sandy, US industry bounced back strongly in November. The recovery was broad-based, with all major industrial sectors contributing to the rise in production. It is also encouraging that the production of business equipment, which had tended on the soft side in recent months, firmed up again. This allays fears of an intensifying reluctance to invest among companies. Hopes that the trend will remain positive are provided by the provisional Markit survey results among purchasing managers in the manufacturing sector. In December the overall index rose clearly for the second month running. Particularly striking is that companies are now upbeat again about new export orders.
At the same time the drop in consumer prices in November (-0.3% on the previous month) reinforces the positive signals from yesterday’s retail sales report. The main factor behind the trend in consumer prices were goods prices, which fell by 1.1%. As a result, in price-adjusted terms, a strong increase in goods consumption, which makes up almost 36% of overall consumption spending, is on the cards. Prospects are therefore good that real consumption has more than made up the soft patch seen in October. For December there is nothing to suggest a notable reversal in consumer prices, particularly as the downward trend in gasoline prices has continued so far this month.
With solid economic activity in December as well, the US economy would be well placed for growth in the first quarter 2013. However, the considerable risks to the economy from the fiscal cliff have still not been averted.