ISM's purchasing index for manufacturing in the U.S. fell in December, showing the effects of global weakness, falling commodity prices and uncertainty about the economy.
Manufacturing in the U.S. showed continued weakness in December, the Institute for Supply Management reported, as sputtering global economies continued to weigh on the sector while lower oil prices dampened investment in the oil and gas business. ISM's monthly purchasing manager's index registered 48.2, down 0.4% from November's 48.6.
Of the 18 manufacturing industries surveyed, six reported growth in December.
Along with the effects of the global economic softness, noted Neil Shankar of TD Economics, U.S. manufacturing "continues to contend with the protracted slump in energy prices which is weighing on energy related investment and hindering demand for drilling equipment and other heavy machinery." And he added that the sector" is not getting any help from the U.S. dollar which continues to rally making U.S. made products more expensive in foreign markets."
While still in contraction territory, new orders and production showed slight gains, bringing them near the breakeven point. However, the employment index continued to worsen, from 51.3 in November to 48.1 in December.
Prices dropped 2 percentage points in December to 33.5, the 14th month that raw materials prices have fallen and the lowest reading since April 2009.
Inventories showed a slight improvement, up half a percent to 43.5, but analysts said they reflected continued uncertainty about the outlook for the economy.
“The inventory problem in the goods side of the economy is evident in the ISM report," said Daniel J. Meckstroth, chief economist for the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation. "Manufacturers have reduced inventories for the sixth month in a row and the pace of the liquidation accelerated recently.”
But Meckstroth noted that "inventory swings are always temporary and this swing has probably already run its course.” With "solid job growth and accompanying income and consumption growth" in the U.S. economy, he predicted that "manufacturing production will accelerate in early 2016.”
New export orders were a bright spot in the December report, returning to growth with a gain of 3.5 percentage points to 51.0. This followed six months of contraction in new orders.
Slower manufacturing activity in China remained the chief global concern as the Caixin PMI for December slipped to 48.2 from 48.6 the previous month. This was the seventh time in the past eight months that manufacturing output in China had fallen.
Dr. He Fan, chief economist at Caixin Insight Group, said the latest PMI showed "the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening."
Manufacturing production in the U.S. has barely moved over the last five months. Last month, the Federal Reserve reported that November output matched October at 106.2. Manufacturing production in November 2015 was up 0.9% compared to November 2014.