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IndustryNet Blog

U.S. manufacturing activity sinks to two-year low

Posted by IndustryNet on Thursday, January 3, 2019

100000316Eberspaecher_Automotive_Controls_Produktion_LandauU.S. manufacturing activity slowed to its lowest level in two years, according the Institute for Supply Management’s latest survey of manufacturing executives.

The ISM's Manufacturing Report on Business shows the sector's activity now stands at 54.1%, down 5.2% from November’s reading of 59.3%.

The index tanked at a rate not seen since 2008 – though it should be noted that the sector is still in expansion mode (any reading above 50 indicates expansion).

Executives surveyed by the ISM reported a significant drop in new orders, while production and employment cooled signficantly.

Says Tim Fiore, Chairman of the ISM: “Comments from the panel reflect continued expanded business strength but at much lower levels. Demand softened, with the New Orders Index retreating to recent low levels, the Customers’ Inventories Index remaining too low – a positive heading into the first quarter of 2019 – and the Backlog of Orders declining to a zero-expansion level.

December’s ISM report still reflects a growing U.S. manufacturing sector, with this past month’s reading of 54.1% still above the 50% mark  indicative of expansion. December stands as the 34th consecutive month of growth for the nation's manufacturing sector, and the 116th straight month of growth in the economy overall.

Eleven of eighteen industries surveyed by the ISM reported growth, led by textile mills; apparel, leather & allied products; machinery; transportation equipment; and computer & electronic products.

Six industries reported contraction in December: printing & related support activities; fabricated metal products; nonmetallic mineral products; petroleum & coal products; paper products; and plastics & rubber products.

Slowdown underway?

One executive in the fabricated metals products industry stated in reponse to the survey: “Caution seems to be the outlook. Are we in a correction, or is the market getting ready to slow over time?”

A number of economists have predicted a deceleration in economic growth in 2019, and the ISM’s steep drop for December echoes the dark days of 2008 as the economy spiraled toward recession.waterjet_cutting_workers

However, given the spike in growth U.S. manufacturing has seen in the past twelve months, and manufacturers’ general scramble to procure and stockpile materials ahead of the proposed tariffs, it is also just as likely that December’s sharp decline is simply a correction in response to the record growth seen in 2018.

New orders sink

After a long run of strong readings, the ISM’s New Orders Index tanked 11 percentage points and is now skirting contraction with a reading of 51.1%. The New Orders Index is now at its lowest reading since August of 2016.

Just six out of eighteen industries reported growth in new orders to the ISM, led by machinery, and followed by electrical equipment, appliances & components; primary metals; food, beverage & tobacco products; computer & electronic products; and transportation equipment.

Production cools

Also notable on this month’s report is a significant slowdown the ISM’s Production Index. According to the ISM, manufacturing production fell 6.3% in December to a level of 54.3%.
Though the index still points to an expansion, the reading hit a two-year low, with production expanding at its slowest rate since October 2016.

Ten out of eighteen industries reported expanded production in December, reports the ISM, led by apparel, leather & allied products; furniture & related products; and primary metals.

Employment eases back

The Department of Labor reported last month that the U.S. added 155,000 jobs in November, with U.S. manufacturing accounting for 17% of those job gains. Overall, the U.S. industrial sector has added nearly 300,000 jobs over the past year, according to the BLS.

However, the Labor Department’s November employment summary is notably less robust than in previous months (October, for instance logged 250,000 new jobs for that month) and the ISM’s employment index reflects this marginal slowdown.

GRANDMAThough the ISM’s Employment Index remained firmly in expansion territory, registering 56.2% in December, job growth for the industry has expanded at a slower rate, down 2.2% from November.

Nine of eighteen industries reported growth in employment, led by textile mills; paper products; and transportation equipment.

About the ISM

The Institute for Supply Management® (ISM®) is the first and largest not-for-profit professional supply management organization worldwide. Founded in 1915, ISM has over 50,000 members located in 100 countries.

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