The US manufacturing sector has shown signs of persistent contraction in December, continuing a trend that began months prior. A recent survey conducted by S&P Global indicated that the manufacturing purchasing managers' index fell to 49.4 in December, a slight decline from 49.7 in November, although still an improvement from the flash reading of 48.3 recorded earlier.
This marks the sixth consecutive month of deterioration in the sector's health, underscoring challenges faced by manufacturers. Production levels have decreased for five months straight, reaching their most rapid rate of decline in a year and a half. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that US factories are grappling with a difficult end to 2024 and are becoming increasingly pessimistic regarding growth in the upcoming year.
This sentiment shift is particularly concerning as November had shown signs of order books stabilizing due, in part, to reduced uncertainty surrounding the upcoming US presidential election, which had temporarily revived customer demand. The decline in new orders during December reflects a broader hesitance among customers to initiate new projects.
This cautious approach is likely compounded by the impending transition of the presidential administration, leading to a pause in commitments. Employment figures, however, showed a modest increase for the second straight month, suggesting some resilience in the labor market. Towards the end of the year, the rate of input cost inflation surged, reaching its fastest level since August.
As a result, firms have raised their output prices, with inflation reaching a three-month high. Suppliers have also experienced extended delivery times, attributed to labor shortages and freight delays, which have exacerbated operational challenges for manufacturers. While there is cautious optimism that business activity may improve in the New Year, with many firms hoping the new administration will ease regulatory burdens, lower taxes, and stimulate demand for domestically produced goods through tariffs, concerns surrounding higher input prices and inflation remain prevalent.
This environment has intensified speculation regarding the Federal Reserve's interest rate decisions for the year ahead, as firms brace for potential financial volatility..