U.S. ISM Manufacturing Index Fell Further in December

The ISM U.S. manufacturing index slipped further into contraction territory in December, falling to 48.4 from 49.0 in November and 50.2 in October, according to the Institute for Supply Management. The December reading was the second consecutive one below the critical value of 50 that separates contraction in the manufacturing sector from expansion and stands at the lowest level since May 2020. ISM research indicates that a reading above 48.7 for the headline index is consistent with an expanding overall economy. Thus, the December reading indicates that the economy may have begun to contract in December. The Action Economics Forecast Survey expected a decline to 48.3 in December.

The new orders index fell to 45.2 in December from 47.2 in November, the sixth month in the last seven that this index was below the break-even level of 50. The percent of respondents reporting an increase in orders rose to 15.8% (NSA) in December from 12.7% in November, but the percent reporting a decrease rose even more, to 31.5% from 25.0%. The production index fell to 48.5 in December from 51.5 in November, its first time below the critical 50 level in 2-1/2 years.

Supplier delivery times continued to increase in December with the index declining to 45.1 from 47.2. This was the third consecutive monthly reading below 50. Recently, faster delivery times have been welcomed as they have been interpreted to indicate repairing supply chains. However, historically faster times have pointed to slowing demand, which is likely the case now. The inventories index rose to 51.8 in December from 50.9 in November.

The employment index increased to 51.4 from 48.4, indicating that employment rose during December. The percent of respondents reporting an increase in employment rose to 15.6% (NSA) from 12.8% while the percent reporting a decrease edged up to 16.9% from 16.6%.

The prices index fell sharply for the second consecutive month, to 39.4 (NSA) in December from 43.0 in November from 46.6 in October. It stands well below its high of 92.1 in June of last year, indicating that input prices are now falling, in marked contrast to their rapid increase in most of 2021 and the first half of 2022.

In other ISM series, the new export orders index fell to 46.2 in December from 48.4 in November. The imports index declined to 45.1 from 46.6 in November, the lowest point since May 2020. The order backlog index edged up to 41.4 from to 40.0 in November.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver’s USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver’s AS1REPNA database.