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Economic activity in the manufacturing sector contracted in December for the 14th consecutive month following a 28-month period of growth, according to the nation’s supply executives in the latest Manufacturing ISM Report On Business. The Manufacturing PMI registered 47.4% in December, up 0.7 percentage point from 46.7% in November.
“The U.S. manufacturing sector continued to contract, but at a slightly slower rate in December as compared to November. Companies are still managing outputs appropriately as order softness continues,” says Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. “(While) demand remains soft, production execution is stable compared to November, as panelists’ companies continue to manage outputs, material inputs and labor costs. Suppliers continue to have capacity.”
Fiore says 84% of manufacturing gross domestic product (GDP) contracted in December, up from 65% a month prior.
“More importantly, the share of sector GDP registering a composite PMI calculation at or below 45% – a good barometer of overall manufacturing weakness – was 48% in December, compared to 54% in November and 35% in October,” he explains.
Important Takeaways, Courtesy of the Manufacturing ISM Report On Business:
- Demand eased, with the (1) New Orders Index contracting at a faster rate; (2) New Export Orders Index essentially flat; and (3) Backlog of Orders Index climbing back above 40% but still in fairly strong contraction territory.
- The Customers’ Inventories Index returned to contraction, becoming more accommodative for future production.
- Output/Consumption (measured by the Production and Employment indexes) contracted but improved, with a combined 4.1-percentage point upward impact on the Manufacturing PMI calculation. Panelists’ companies maintained production levels month-over-month and continued actions to reduce head counts in December, primarily through layoffs.
- Inputs – defined as supplier deliveries, inventories, prices and imports – continued to accommodate future demand growth.
- The Supplier Deliveries Index indicated faster deliveries for the 15th straight month, but the Inventories Index declined while remaining in moderate contraction territory.
- The Prices Index dropped further into “decreasing” territory, signifying soft energy markets which are offset by increases in the steel and aluminum markets. Manufacturing supplier lead times continue to decrease (supported by panelists’ comments) – a positive for future economic activity.
