US Manufacturing Is Slowing Down Too Far and Too Fast

Manufacturing activity is slowing. That’s the view of the Institute for Supply Management’s Report on Business for the month of December. The Purchasing Managers Index came in at 54.1%. While this still represents growth above the 50.0 line, there are some troubling signs when you back out some of the internals and when you look at some of the comments that the ISM included in its release.

The Wall Street Journal forecast a reading of 57.0%. That was down from the preliminary report of 59.3% in November.

Thursday’s report suggested that new orders, production and employment were growing in December, but supplier deliveries slowed while the backlog was unchanged. Another issue to consider was that the inventories of raw materials were growing, and the ISM indicated that customers’ inventories are too low. There is good news on the inflation front as prices were increasing at a slower rate at the same time that exports and imports grew.

All in all, the ISM showed that December marked the 116th consecutive month that the U.S. manufacturing sector expanded. But when you look at the overall trend, each of the main components here was shown to be “decreasing” across the board. A breakdown of the report follows:

The New Orders Index was 51.1%, a decrease of 11.0 percentage points from November. The Production Index was 54.3%, 6.3-percentage point decrease. The Employment Index was 56.2%, a decrease of 2.2 percentage points. The Supplier Deliveries Index was 57.5%, a 5.0-point decrease. The Inventories Index was 51.2%, a decrease of 1.7 percentage points. The Prices Index was 54.9%, a 5.8-percentage point decrease.

Overall comments showed that demand softened, new orders were at recent lows, inventories remained too low and backlog declined to a zero-expansion level. Also noted in the report was that price increases “relaxed

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