STLD Steel Dynamics Inc

By Jeffrey Sparshott 

U.S. manufacturing activity rose to the highest level in more than two years in January amid rising demand and expectations for a friendlier business environment during the Trump administration.

The Institute for Supply Management on Wednesday said its purchasing managers index rose to 56.0 in January from 54.5 in December, the highest since November 2014. A reading over 50 indicates expansion in the sector; below 50 suggests contraction.

The closely watched gauge has now climbed for five straight months, partly reflecting stabilization of the dollar and oil prices, alongside some improvement demand at home and abroad.

November's election of Donald Trump -- and his promises of lower taxes, fewer regulations, more infrastructure spending and a focus on domestic production -- also appears to have raised corporate expectations.

"I think they've come out with guns blazing and following up on the some of their campaign promises," Mark Millett, president and chief executive of Steel Dynamics Inc., told investors last week. "And I think tax reform...and sensible regulation will certainly help the country have a more positive business climate and boost the economy."

The U.S. steel industry had been battered by low commodity prices, which damped demand for heavy equipment, and a flood of imports.

The Fort Wayne, Ind.-based company said the outlook has brightened. Mr. Millett anticipates steady demand from the auto sector, a strong improvement in the energy sector and pickup in construction from government infrastructure spending.

More broadly, 12 of the 18 industries in Wednesday's reported growth in January.

Underlying details also were upbeat. The ISM new-orders index inched up to 60.4 in January from 60.3 the prior month, and the production index was 61.4 last month, up from 59.4 in December.

The employment index increased to 56.1 compared with 52.8 a month earlier, suggesting the sector is hiring at a healthy clip.

"It's a continuation of the momentum that was built in the latter part of last year and hopes and expectations for the new economy, the new administration, which is settling into starting its work," said Bradley Holcomb, who oversees the survey.

Raw material prices are also up for 11 straight months, a development that could suggesting rising inflation pressures. The subindex registered 69 in January, an increase from 65.5.

The overall ISM gauge signaled contraction in late 2015 and early 2016 as manufacturers were squeezed by the energy sector's slump and a strong dollar, which curtailed foreign demand for U.S.-made products.

Other measures of manufacturing, meanwhile, have been mixed. Demand for long-lasting goods stabilized toward the end of the year, according to separate Commerce Department data. A Federal Reserve report on industrial output showed that factory activity ended 2016 little changed from the beginning of the year.

"We suspect some of the current strength [in ISM] reflects a temporary postelection rise in confidence rather than any significant change yet in underlying trends," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com

(END) Dow Jones Newswires

February 01, 2017 13:20 ET (18:20 GMT)

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