December ISM Report Shows U.S. Manufacturing Contracting, the Overall Economy Growing - Global Trade Magazine
  January 13th, 2016 | Written by

December ISM Report Shows U.S. Manufacturing Contracting, the Overall Economy Growing

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  • The December PMI registered 48.2 percent, a decrease of 0.4 percentage point from November.
  • A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding.
  • Contraction in new orders, production, employment, and inventories accounted for the softness in December.

Economic activity in the U.S. manufacturing sector contracted in December for the second consecutive month, while the overall economy grew for the 79th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

Of the 18 manufacturing industries, six reported growth in December in the following order: printing; textile; paper products; miscellaneous manufacturing; chemical products; and food, beverage and tobacco. The 10 industries reporting contraction in December, listed in order, are: apparel; plastics and rubber; machinery; primary metals; fabricated metal products; transportation equipment; electrical equipment and appliances; computers and electronics; wood products; and nonmetallic mineral products.

“The December PMI [purchasing managers index] registered 48.2 percent, a decrease of 0.4 percentage point from the November reading of 48.6 percent,” said Bradley Holcomb, chair of the Institute for Supply Management manufacturing business survey committee. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

The new orders index registered 49.2 percent, an increase of 0.3 percentage point from the reading of 48.9 percent in November. The production index registered 49.8 percent, 0.6 percentage point higher than the November reading of 49.2 percent. The employment index registered 48.1 percent, 3.2 percentage points below the November reading of 51.3 percent. The prices index registered 33.5 percent, a decrease of two percentage points from the November reading of 35.5 percent, indicating lower raw materials prices for the 14th consecutive month. The new export orders index registered 51 percent, up 3.5 percentage points from the November reading of 47.5 percent and the imports index registered 45.5 percent, down 3.5 percentage points from the November reading of 49 percent.

“Contraction in new orders, production, employment, and raw materials inventories accounted for the overall softness in December,” said Holcomb.

Comments of respondents were a mixed bag, depending on the sector they represented. Lower oil prices benefitted consumers of petroleum such as the petrochemicals industry but negatively impacted industries involved in oil and gas exploration activities. Apparel sales continue to be soft, resulting in

workforce reductions among manufacturers, while the medical device business continues to be strong, both in the U.S. and abroad.

A PMI above 43.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the December PMI indicates growth for the 79th consecutive month in the overall economy, while indicating contraction in the manufacturing sector. “The past relationship between the PMIand the overall economy indicates that the average PMI for January through December, of 51.4 percent, corresponds to a 2.6 percent increase in real gross domestic product on an annualized basis,” said Holcomb. “If the PMI for December of 48.2 percent is annualized, it corresponds to a 1.6 percent increase in real GDP annually.”