–ISM Manufacturing Index 47.4 Vs. 46.7 in November
–ISM’s Fiore: Main Index Likely to Rise Above Neutral Line of 50 in March
–Fiore: 2023 Ended in Trough but in ‘Very Good Note’ on Positive Outlook
–Fiore Sees a Spike in New Orders, Rebound in Inventories in Coming Months
–Fiore: Reble Attacks on Ships in Red Sea ‘Not an Operational Concern’
By Max Sato
(MaceNews) – U.S. manufacturing activity was in contraction territory for the 14th straight month in December, but the key index rose from November as production was stable despite sluggish demand, data from the Institute for Supply Management released Wednesday showed, with a senor ISM official predicting a return to growth in March.
The sector index compiled by the ISM, which shows general direction, rose 0.7 percentage point to 47.4 after being unchanged at 46.7 in November, slumping 2.3 points to 46.7 in October and rising 1.4 points to a 10-month high of 49.0 in September. The latest figure was slightly higher than the median economist forecast of 47.2. It remained below 50, which indicates contraction in the sector.
“The U.S. manufacturing sector continued to contract, but at a slightly slower rate in December as compared to November,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Companies are still managing outputs appropriately as order softness continues.”
Fiore told reporters that he expects the main index to go above the neutral line of 50 in March, judging from the generally positive outlook among manufacturers and that the year 2023 ended in a trough but “in a very good note.” The December survey showed a high three-to-one ratio for optimistic vs. pessimistic comments on the future from surveyed firms, he explained.
The majority of the comments in the December survey do not reflect the latest signal from Federal Reserve policymakers for lower interest rates in 2024, he said.
Most of the survey responses were received early last month due to the holidays and a majority came just before the Federal Open Market Committee decided to hold rates steady on Dec. 13, according to the ISM.
Fiore expects a “spike” in the ISM new orders subindex in the next couple of months. It stayed below 50 for the 16th straight month in December. The inventories subindex, which has remained below 50 for 10 months, is also likely to start climbing “fairly rapidly” in coming months, he added.
The U.S. economy is expected to continue improving in 2024 on expectations that it will avoid recession and inflation and borrowing costs will ease, according to the ISM’s twice-annual survey released on Dec. 15. The panel of purchasing and supply executives in the manufacturing expects a 5.6% net increase on average in overall revenues for 2024, compared to a 0.9% increase reported for 2023 and a 1.7% increase projected in the May survey for 2023.
Asked about recent attacks by Houthi rebels on Israeli-linked vessels in the Red Sea, Fiore said shipments may be delayed and ocean freight costs are likely to rise, but that he said it is “not an operational concern.”
The ISM main index has been on a downtrend since it fell 3.0 points to 53.1 in June 2022 but it seems to have hit a bottom in June 2023 at 46.0, the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
To assess the overall economic climate, the latest ISM survey indicates the overall economy contracted for a third month in a row after one month of growth preceded by nine months of contraction and 30 months of expansion from June 2020 to November 2022. The ISM’s manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the U.S. economy.
The December survey showed that 84% of manufacturing gross domestic product GDP contracted, up from 65% in November and 75% in October.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 16th consecutive month, staying below the neutral line of 50. It fell 1.2 percentage points to 47.1 in December after rising 2.8 points to 48.3 in November, plunging 3.7 points to 45.5 in October and rising 2.4 points to 49.2 in September (the highest since 50.4 in August 2022). October’s 45.5 is the lowest since May (42.6).
The production index reading of 50.3 in December is a 1.8-point increase from 48.5 in November, when it fell 1.9 points. It dipped 2.1 points to 50.4 in October after rising 2.5 points to 52.5 in September from 50.0 in August. The index slumped 4.4 points to 46.7 in June 2023, hitting the lowest since 34.2 in May 2020 at the initial phase of the pandemic.
The employment index rose 2.3 points to 48.1 in December after sliding 1.0 point to a four-month low of 45.8 in November, slipping back to contraction in October, when it fell 4.4 points to 46.8 and rising 2.7 points to 51.2 in September. “Panelists’ comments were equally split between companies hiring and others reducing their labor forces, as was the case in November,” Fiore said in the December report. An employment index above 50.4, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.
The delivery performance of suppliers to manufacturing organizations was faster for the 15th straight month, thanks to improved supply chains. The supplier deliveries index at 47.0 is a 0.8-point rise from 46.2 in November, when it fell 1.5 points from 47.7 in October. The May 2023 figure of 43.5 is the lowest since 43.2 in March 2009. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
Among other subindexes, the customers’ inventories index fell2.7 points to 48.1 in December, indicating the level is “too low,” after rising 2.2 points to 50.8 in November (the first “too high” in six months) and climbing 1.5 points to 48.6 in October. The index above 50 means the level is “too high.” The all-time high is 56.0 hit in January 2001.
The prices index indicated decreases for the eighth consecutive month. It dipped 4.7 points to 45.2 in December after rising 4.8 points to a seven-month high of 49.9 in November, rising 1.3 points to 45.1 in October and falling 4.6 points to 43.8 in September. The index has stayed below the key 50 level since it slumped 9.0 points to 44.2 in May 2023 from 53.2 the previous month.
The backlog orders index was in contraction for 15 months, rose 6.0 points to 45.3 in December after falling 2.9 points to a five-month low of 39.3 in November and dipping 0.2 point to 42.2 in October. It slumped 5.6 points to 37.5 in May 2023, which is the lowest since the Great Recession (33.6 in February 2009).
The new export orders index was in contraction for the seventh straight month. It rose 3.9 points to 49.9 in December after falling 3.4 points to 46.0 in November and rising 2.0 points to 49.4 in October. It rose 0.2 point to the neutral level of 50.0 in May 2023, which was preceded by nine straight months in contraction territory and 25 months of expansion from July 2020 to July 2022.
The manufacturing sector is in the 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.