U.S. Factory Growth Slows in December

U.S. manufacturing growth slowed in December but prices companies paid for raw materials rose, indicating that the economy may be near a plateau, the National Assn. of Purchasing Management said Monday.

The NAPM Purchasing Managers’ Index, a measure of overall strength in the factory sector, eased to 55.5 in December from 56.2 in November.

The prices index, closely watched as a barometer of inflation, rose to 65.7 from 65.3. But stiff competition appears to be making firms reluctant to pass on price increases.

“In general, I think it’s an indication the economy has kind of plateaued, that we are at a very positive level of growth,” said Norbert Ore, chair of the NAPM manufacturing business survey committee.

Although the PMI was weaker than the 56.1 forecast by economists in a Reuters survey, some on Wall Street were concerned about the inflationary implications of prices and strength in employment. The employment index rose to 54.3 from 52.2 the prior month, its highest level in 11 years.

A PMI reading above 50 suggests an expanding manufacturing sector, and below 50 indicates contraction.

The NAPM painted a robust picture of the U.S. economy in the final month of last year. The average PMI for 1999, Ore said, would be consistent with a healthy 3.8% rate of gross domestic product growth last year.

“What I think I’m still somewhat amazed at is the amount of restraint that many industries are using and not aggressively pursuing price increases when possibly they could be,” Ore said.

“But I really do believe there is just a tremendous amount of pressure in the marketplace to keep pricing under control and apparently is doing so,” he added.

Ore said the December data gave some contradictory signals, with new orders dropping a bit while deliveries sped up slightly. The backlog of orders did not grow.

He said some of the confusion may have been due to businesses freezing some purchases in the second half of the month out of concern about year-end computer problems.