The US manufacturing sector's contraction showed improvement in December due to increased demand, as reflected in the Institute for Supply Management's survey results. According to the ISM purchasing managers' index, the reading rose to 49.3 in December, marking its highest level since March, up from 48.4 in November.
A reading below 50 typically indicates a contraction in the manufacturing sector, with the 12-month average standing at 48.3, emphasizing the ongoing challenges faced by this industry. Timothy Fiore, chair of the ISM's manufacturing business survey committee, noted, 'US manufacturing activity contracted again in December, but at a slower rate compared to November.
Demand showed signs of improving, while output stabilized and inputs stayed accommodative.' This nuanced perspective highlights that while the sector is still contracting, there are emerging signs of recovery. The survey revealed that out of the manufacturing industries, seven reported contraction in December, while the other seven experienced growth.
Notably, the production index demonstrated a positive shift, rising to 50.3 in December from 46.8 in November, indicating an upward trend in productivity. Additionally, new orders increased to 52.5 from 50.4, marking their expansion for the second consecutive month after a challenging period of seven months of contraction. Despite these signs of improvement, the ISM employment index reflected ongoing struggles in the labor market, declining by 2.8 points to 45.3 in December, representing a contraction for the seventh consecutive month.
This troubling trend raises concerns about employment stability within the sector. Furthermore, the price paid gauge also accelerated, increasing to 52.5 last month from 50.3 in November, indicating potential inflation pressures. BMO Capital Markets Senior Economist Sal Guatieri expressed a cautiously optimistic outlook, stating, 'On balance, the report suggests manufacturers ended the year with a hint of optimism, but they could face some pretty stiff challenges in the new year.' This sentiment underscores the complexities within the manufacturing landscape, balancing between recovery and the potential headwinds ahead. Contemporaneously, S&P Global (SPGI) reported a drop in its manufacturing PMI to 49.4 last month from 49.7 in November, highlighting the ongoing declines in output and new orders.
Their analysis pointed out that sentiment among manufacturers reached its lowest level since August, illustrating the fragility of the recovery process in this essential sector of the economy..