–ISM Manufacturing Index at 49.3 Vs. 48.4 in November, Well Above Median Forecast of 48.5
–ISM’s Fiore: ‘We Are Concerned’ About Trump Tariff Threat as It Would Cause Supply Chain Confusion
–Fiore: ISM Set to Rise Above Neutral Line of 50 in Q1, ‘If Not In January, Probably in February’
–Fiore: Not Much Price Pressure; December CPI, PCE, PPI Seen Flat on Month
By Max Sato
(MaceNews) – U.S. manufacturing activity unexpectedly perked up in December, edging closer to growth thanks to signs of recovery on the demand side, but it was still in contraction for the ninth straight month amid lingering concerns over President-elect Donald Trump’s tariff threat and firms continued to shed workers, the latest monthly data from the Institute for Supply Management showed Friday.
The sector index compiled by the ISM, which indicates general direction, rose for the second consecutive month, up 0.9 percentage point at 49.3 in December after rising 1.9 points to a five-month high of 48.4 in November and unexpectedly slipping to 46.5 in October. The latest figure came in higher than the median economist forecast of 48.5.
The months of December and January reflect statistical adjustments made to correct month-to-month surges or plunges caused by seasonal factors, such as much shorter operation days during the yearend holiday season, re-stocking ahead of the Lunar New Year (Jan. 29 this year) and winter weather disruptions for those two months.
In the unadjusted series, the purchasing managers index was 47.0, much lower than the seasonally adjusted headline figure of 49.3. Seasonal adjustments added 5.3 points to production and 4.0 points to new orders.
Despite those factors, Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, told reporters, “On the demand side, all are heading in the right direction.”
“Demand showed signs of improving, while output stabilized and inputs stayed accommodative,” Fiore also said in a statement. “Demand improved, production execution met November’s performance (and companies’ plans), de-staffing continued (but should end soon), and price growth was marginal.”
Fiore said supply managers are “concerned” about the threat posed by Trump to impose a 25% tariff on all goods from Mexico and Canada, and an additional 10% tariff on imports from China, all part of his drive to crack down on illegal drugs and immigration.
But the same time, they are trying to minimize the impact by seeking alternative supplies at this point and the PMI is unlikely to be affected until April onwards, he said.
The ISM monthly survey showed that 35% of comments were tariff related in December, up from 20% in November and 10% in October. High tariffs, if and when they are actually implemented, would cause supply chain confusion in the customs clearance process at the first ports of entry and feed over into transportation, Fiore projected.
Fiore told reporters that he still expects the ISM manufacturing PMI to rise above the make-or-break point of 50 in the January-March quarter, “if not in January, probably in February,” at last emerging from the post-pandemic slowdown that was caused by heightened geopolitical risks and uncertainties over how the U.S. fiscal and monetary policy-making evolves.
On the inflation front, Fiore said there is “not much price pressure” in the ISM prices paid index, although it is still in expansion territory. He projected that the official U.S. data for December measuring consumer prices, personal consumption expenditures and producer prices will be coming in little changed from November, maintaining their “flatness.”
Among the five subindexes that directly factor into the manufacturing PMI, four posted solid gains: the new orders index at 52.5 (+2.1 points), the production index 50.3 (+3.5), the employment index 45.3 (-2.8), the supplier deliveries index 50.1 (+1.4), the manufacturing inventories index 48.4 (+0.3).
Among other notable moves, the index for backlog orders at 45.9 (+4.1) hit a nine-month high “as new orders coupled with stable production levels slowed the rate of declining backlogs” and the new export orders index at 50.0 (+1.3), reaching a seven-month high and stabilizing.
The new orders index expanded in December for the second consecutive month after seven months in contraction, registering 52.5, an increase of 2.1 percentage points compared to November’s figure of 50.4, although it hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Panelists noted an improved level of demand performance, with a 1.5-to-1 ratio of positive comments versus those expressing concern about near-term demand, an improvement compared to November,” Fiore said.
The production index emerged into expansion territory in December, registering 50.3, 3.5 points higher than the November reading of 46.8 and reversing six consecutive months of contraction. The last time the index stood above 50 was in May 2024 (50.2). This indicates that “re-planning factory floor activity has likely been completed, head counts are likely synchronized with factory demand, and panelists are fully staffed and aligned for 2025,” Fiore said. The index rose to 49.8 in September from 44.8 in August, which was the lowest since 34.2 in May 2020, when world demand plunged at the initial phase of the pandemic. “
The employment index was at 45.3 in December, 2.8 points lower than the November reading of 48.1, contracting for the seventh consecutive month and the 14th out of the last 15 months. Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes. “This action is supported in December by the approximately 1-to-2 ratio of hiring versus staff-reduction comments, compared to a 1-to-1.5 ratio the previous month, meaning more workforce reduction activity is occurring as we close 2024,” Fiore explained.
Delivery performance of suppliers to manufacturing organizations was marginally slower in December, with the supplier deliveries index registering 50.1, a 1.4-percentage point increase compared to the reading of 48.7 reported in November. After a reading of 52.4 in September 2022, the index went into contraction territory the following month and remained there for 20 out of 21 months (with February 2024 as the exception).
The manufacturing inventories index stood at 48.4 in December, up 0.3 point from 48.1 in November. The slowing rate of contraction suggests that “companies are willing to invest more for the future, to (1) better perform to their customers’ delivery demands or (2) advance material deliveries to avoid potential tariffs, or a combination of both,” said Fiore. It has remained under the neutral line of 50 for the past 23 months except in August 2024 (50.3)
Among other subindexes, the prices paid index was at 52.5, up 2.2 points from 50.3 the previous month, indicating raw materials prices increased for the third straight month in December after a decrease in September. The manufacturing sector is in its sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019, and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.