U.S. Manufacturing Failed to Grow In December

ISM survey reports an end to 10 consecutive months of growth

Although the overall economy grew for the 74th consecutive month, the manufacturing sector failed to grow following 10 consecutive months of expansion, according to the latest survey by the Institute for Supply Management. "The recent trend has been toward slower growth. However, December was apparently a very tough month as New Orders, Production and Employment were all below the break-even mark of 50%. Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better. Slower demand appears to be more of a problem than excessive inventories based on the respondents' comments," said Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.

The manufacturing PMI registered 47.7%, a decrease of 3.1 percentage points when compared to November's reading of 50.8%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

"The December ISM index confirms our view that manufacturing activity is declining and that manufacturing industrial production declined in fourth quarter 2007 from its level in the previous quarter," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "A manufacturing recession has begun and we feel it is the precursor to a general business recession in the first half of 2008. The housing collapse, decline in motor vehicle output, record high oil prices, the credit crunch, and declining housing prices are enough economic shocks to bring any economic cycle to a halt. The most disturbing aspect to the December ISM report, though, is that the export index indicates much slower growth in exports. It is the net foreign trade (exports less imports) improvement that economists hope will cushion the economic downturn."

The overall economy is growing however. "The past relationship between the PMI and the overall economy indicates that the PMI average for January through December (52.2%) corresponds to a 3.2% increase in real gross domestic product (GDP) annually. In addition, if the PMI for December (47.7% is annualized, it corresponds to a 1.8% increase in real GDP annually," explained Ore.

ISM's New Orders Index registered 45.7% in December, which is 6.9 percentage points lower than the 52.6% reported in November.

ISM's Production Index fell to 47.3% in December, a decrease of 4.6 percentage points when compared to November's reading of 51.9%.

ISM's Employment Index registered 48% in December, which is an increase of 0.2 percentage point when compared to November's reading of 47.8%.

The delivery performance of suppliers to manufacturing organizations continued to slow in December as the Supplier Deliveries Index increased 1.6 percentage points to 53.3%. A reading above 50% indicates slower deliveries.

Manufacturers' inventories contracted again in December as the Inventories Index registered 45.5%, which is 1.4 percentage points lower than November's reading of 46.9%. This is the 17th consecutive month of inventory liquidation.

The ISM Prices Index registered 68%, indicating manufacturers are paying higher prices on average when compared to November.

ISM's New Export Orders Index registered 52.5% in December, a decrease of 6 percentage points when compared to November's index of 58.5% . This is the 61st consecutive month of growth in export orders.

Imports of materials by manufacturers failed to grow during December as the Imports Index registered 48%, 0.5 percentage point higher than the 47.5% reported in November. This is the third month of contraction in the index following 69 consecutive months of growth.

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