Economic activity in the manufacturing sector contracted in December for the second consecutive month following a 29-month period of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The December Manufacturing PMI® registered 48.4 percent, 0.6 percentage point lower than the 49 percent recorded in November. Regarding the overall economy, this figure indicates contraction after 30 straight months of expansion. The Manufacturing PMI® figure is the lowest since May 2020, when it registered 43.5 percent. The New Orders Index remained in contraction territory at 45.2 percent, 2 percentage points lower than the 47.2 percent recorded in November. The Production Index reading of 48.5 percent is a 3-percentage point decrease compared to November’s figure of 51.5 percent. The Prices Index registered 39.4 percent, down 3.6 percentage points compared to the November figure of 43 percent; this is the index’s lowest reading since April 2020 (35.3 percent). The Backlog of Orders Index registered 41.4 percent, 1.4 percentage points higher than the November reading of 40 percent. The Employment Index returned to expansion territory (51.4 percent, up 3 percentage points) after contracting in November (48.4 percent). The Supplier Deliveries Index reading of 45.1 percent is 2.1 percentage points lower than the November figure of 47.2 percent; this is the index’s lowest reading since March 2009 (43.2 percent). The Inventories Index registered 51.8 percent, 0.9 percentage point higher than the November reading of 50.9 percent. The New Export Orders Index reading of 46.2 percent is down 2.2 percentage points compared to November’s figure of 48.4 percent. The Imports Index continued in contraction territory at 45.1 percent, 1.5 percentage points below the November reading of 46.6 percent.”

Fiore continues, “The U.S. manufacturing sector again contracted, with the Manufacturing PMI® at its lowest level since the coronavirus pandemic recovery began. With Business Survey Committee panelists reporting softening new order rates over the previous seven months, the December composite index reading reflects companies’ slowing their output. Demand eased, with the (1) New Orders Index remaining in contraction territory, (2) New Export Orders Index markedly below 50 percent, (3) Customers’ Inventories Index in ‘just right’ territory, and (4) Backlog of Orders Index recovering slightly but still in strong contraction. Output/Consumption (measured by the Production and Employment indexes) was neutral, with a combined zero-percentage point impact on the Manufacturing PMI® calculation. The Employment Index moved back into expansion, and the Production Index dropped into contraction territory. Many panelists’ companies confirm that they are continuing to manage head counts through a combination of hiring freezes, employee attrition and layoffs. Inputs — defined as supplier deliveries, inventories, prices and imports — accommodated future demand growth. The Supplier Deliveries Index indicated faster deliveries, and the Inventories Index expanded at a faster rate as panelists’ companies continued to effectively manage the total supply chain inventory. The Prices Index contracted for the third consecutive month and has declined in each reading since March 2022, when it registered 87.1 percent.

“Of the six biggest manufacturing industries, one — Petroleum & Coal Products — registered moderate growth in December.

“Manufacturing contracted again in December after expanding for 29 straight months. Panelists’ companies continue to judiciously manage hiring. The month-over-month performance of supplier deliveries was the best since March 2009. Average lead time remained 32 percent above previous trough for capital expenditures and 37 percent for purchased materials; both are too high. Managing head counts and total supply chain inventories remain primary goals as the sector closes the year. More attention will be paid to demand as we enter the first quarter to shore up order books for the next six to 12 months,” says Fiore.

The two manufacturing industries that reported growth in December are: Primary Metals; and Petroleum & Coal Products. The 13 industries reporting contraction in December, in the following order, are: Wood Products; Fabricated Metal Products; Chemical Products; Paper Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Machinery; Food, Beverage & Tobacco Products; Transportation Equipment; and Miscellaneous Manufacturing.

Find the complete report here.

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