U.S. ISM manufacturing index worsens in December, production unlikely to recover in coming months

The U.S. ISM manufacturing index deteriorated further in the month of December. The index fell to 47.2 from November’s 48.1, as compared with consensus expectations of a rebound to 49. The headline composite index has not signalled contraction for five straight months.

Two of the five subcomponents saw a rebound in the month, with all but one continuing to signal contraction. The largest rebound was in supplier deliveries, followed by inventories, which recorded a rise to 54.6 and 46.5, respectively. On the contrary, production fell most, followed by employment and new orders, with the index dropping to 43.2, 45.1 and 46.8, respectively.

Prices paid rose solidly in December to 51.7, hinting at rising price pressures for the first time since May. Increasing prices seem to be largely a result of price rises for steel, copper, and aluminium products. The new export orders index hinted at a deeper contraction in December, while import orders rebounded but remained in contraction.

Three of the 18 manufacturing industries recorded growth in the month, down from five in November. Fifteen industries saw a contraction in December.

Sentiment in manufacturing deteriorated unexpectedly in the month, but the narrative continues to be unchanged. Manufacturing output is sluggish with little hope for a quick rebound. Persistently soft new orders and employment do not augur well for a wide recovery in production in the months ahead, said TD Economics in a research report.

“Trade policy uncertainty should continue to weigh on American manufacturers in the months ahead. Other factors likely to continue to impede domestic manufacturing output include weak foreign demand, a high dollar, and less robust domestic demand”, added TD Economics.