PMI falls 0.9 percentage points in December

The Purchasing Managers’ Index (PMI) declined 0.9 percentage points to 47.2% in December, from November, as economic activity in the manufacturing sector contracted for the fifth consecutive month and at a faster rate than in November, according to the Institute for Supply Management (ISM). A reading above 50% indicates the manufacturing economy is expanding and below 50% indicates it’s contracting.

The ISM released Friday (Jan. 3) the Manufacturing ISM Report on Business for December with the PMI falling to the lowest reading since June 2009 when it was 46.3%. Meanwhile, GDP grew at 1.3% as the overall economy grew for the 128^th consecutive month.

The new orders index declined 0.4 percentage points to 46.8% in December, from November. The backlog of orders index rose 0.3 percentage points to 43.3%. The employment index fell 1.5 percentage points to 45.1%. The supplier deliveries index rose by 2.6 percentage points to 54.6%. The inventories index increased by 1 percentage point to 46.5%. The prices index increased 5 percentage points to 51.7%. The new export orders index fell 0.6 percentage points to 47.3%. The imports index increased by 0.5 percentage points to 48.8%.

Comments from the panel surveyed for the report show that sentiment improved compared to the third quarter. Demand contracted with the new orders index contracting more quickly, the customers’ inventories index was too low and the backlog of orders index fell for the eighth consecutive month. The new export orders index declined for the second consecutive month and has performed poorly for 10 months and likely contributing to the faster decline in the new orders index.

Consumption, which is measured by the production and employment indexes, fell as a result of lack of demand and led to a 7.4-percentage point decline in the PMI. Inputs, which comprise supplier deliveries, inventories and imports, rose in December as a result of a slowing decline in inventories and a rise in supplier deliveries. The decline in imports eased slightly in December. Overall, inputs show supply chains started to stress in December, and companies were cautious that materials received would be used by the end of the fourth quarter. Prices rose for the first time since May 2019, a positive for 2020, the report shows.

The most significant issue for the manufacturing sector remains global trade, but several industries in the sector are expected to benefit from a trade agreement between the United States and China, according to the report. Food, beverage and tobacco products remained the strongest industry in the sector, while transportation equipment was the weakest. Overall, sentiment in December was slightly positive regarding near-term growth.

The following three manufacturing industries reported growth in December: food, beverage and tobacco products; miscellaneous manufacturing; and computer and electronic products. The following 15 industries reported declines in December: apparel, leather and allied products; wood products; printing and related support activities; furniture and related products; transportation equipment; nonmetallic mineral products; paper products; fabricated metal products; petroleum and coal products; electrical equipment, appliances and components; textile mills; primary metals; chemical products; plastics and rubber products; and machinery.