24/7 Wall St.

The U.S. economy continued expanding in December, posting a purchasing managers index (PMI) reading of 55.0, above the November reading of 54.7 and the consensus estimate for 54.5. Readings above 50 indicate expansion, while those below indicate contraction. The December index is the highest in 11 months.

Markit Economics noted that output expanded at a faster rate in December, compared with November expansion, and that employment also expanded faster. The employment reading was especially encouraging, rising from 52.3 to 54.0. How much of that is due to seasonal hiring remains to be seen, but Markit said that among those it surveyed the business outlook is improving.

The company’s chief economist said:

The upturn in the PMI in December rounds off one of the strongest quarters for manufacturing since the economy pulled out of recession. The goods producing sector is therefore on course to provide a firm boost to the economy in the fourth quarter, which we expect to see growing at an annualised pace of at least 3%.

The fastest rate of output growth was reported by manufacturers of investment goods. That is, the makers of equipment used by other companies to manufacture goods for sale to consumers. That indicates rising confidence in the economy and signals that employment growth ought to continue as well. The growth in investment goods also indicates that the economic recovery is becoming self-sustaining, depending less on programs such as the Federal Reserve’s asset purchases.

Markit’s chief economist said that the December improvement “supports the view that the Fed will continue to taper its asset purchases at its January meeting.” The announcement of the Fed’s first cutback in purchases only slowed the equity markets down for a day, so a further cut may not have much impact either. As long as the central bank keeps it very low interest rate, ongoing economic expansion could continue throughout the year.