US Manufacturing Takes A Hit: Longest Downturn Since Early 2000s, Yet Exceeds December Predictions

Economic activity in the U.S. manufacturing sector contracted in December for the 14th consecutive month, marking the longest slump for the sector since 2000-2001. This persistent downturn highlights ongoing challenges faced by the industry, despite some areas showing signs of stabilization.

Key Data Highlights:

• The Institute for Supply Management (ISM) Manufacturing PMI came in at 47.4 in December, up from 46.7 in November, and better than the expected 47.1. 
• Notably, production showed a rebound, increasing from 48.5 in November to 50.3 in December, signaling a shift from contraction to growth.
• In contrast, new orders continued to shrink, moving down from 48.3 to 47.1, while employment and inventories also contracted further.
• Price pressures eased (45.2, down from 49.9), attributed to lower energy costs counterbalancing increases in steel and aluminum.
• The Supplier Deliveries Index rose to 47, from 46.2, suggesting that supplier lead times are decreasing, potentially a positive indicator for future economic activity.

Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, emphasized the ongoing contraction within the sector, while hinting at a slower rate of decline compared to November.

Companies are still managing outputs appropriately as order softness continues, Fiore explained.

Fiore noted that production execution has stabilized compared to November, but with a cautious approach towards managing outputs, material inputs, and labor costs.

Market reactions: U.S. stocks extended losses on a volatile start to the year, after the first session of the year saw a 1.6% slump in the tech-heavy Nasdaq 100. The S&P 500, as tracked by the SPDR S&P 500 ETF Trust SPY, has tumbled 1.4% in the first two sessions of the new year.

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