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Economic activity in the manufacturing sector continued to contract in December after a drop in November. The Institute for Supply Management's Manufacturing Report on Business shows a decline in the PMI (purchasing management index) from 48.6% in November to 48.2% in December. While that is not a large drop, it is a decline nonetheless, as U.S. manufacturing weakness finally reared its ugly head for the second straight month.

Clare Goldsberry

January 4, 2016

3 Min Read
ISM manufacturing report shows continued contraction

Economic activity in the manufacturing sector continued to contract in December after a drop in November. The Institute for Supply Management's Manufacturing Report on Business shows a decline in the PMI (purchasing management index) from 48.6% in November to 48.2% in December. While that is not a large drop, it is a decline nonetheless, as U.S. manufacturing weakness finally reared its ugly head for the second straight month.

While the ISM has tried to put a positive spin on the manufacturing economy throughout 2015, the slide in U.S. industrial production (the output of businesses integrated in the industrial sector of the economy such as manufacturing, mining and utilities) has been quite evident, going from 4.6 in January 2015 to -1.2 in November (the last month for which data is available from www.tradingeconomics.com; see chart below).

united-states-industrial-production-625.jpg

U.S. industrial production, January to November 2015.

While the New Orders Index ticked up to 49.2% in December from November's 48.9%, the index remains in the "contracting" zone of the ISM's PMI. The Production Index for December shows the same narrow margin of improvement—from 49.2% in November to 49.8% in December—also staying in the "contracting" direction. With the Production Index down, the Backlog of Orders Index is also in decline, down 2.0% in December to 41.0% from November's 43.0%.

united-states-manufacturing-pmi-forecast-625.jpg

U.S. manufacturing PMI projection.

Employment dropped considerably, with the PMI showing a decline from 51.3% in November to 48.1% in December, dropping into the "contracting" zone from the previous month's "growing" column. While the Supplier Deliveries Index managed to remain on the "growing" side of the chart, that segment is slowing, down to 50.3% in December from 50.6% in November. Inventories continue to contract, but showed slight improvement to 43.5% in December from 43.0% in November. Customer Inventories remain "too high," according to the ISM PMI, up to 51.5% in December from 50.5% in November.

Prices are continuing their downward trend, decreasing 2.0% to 33.5% in December from 35.5% in November.

The year ended on a down note, and prospects for the first quarter of 2016 don't look a whole lot brighter, with projections from the United States Manufacturing PMI forecast showing a bump up from 51.2 actual PMI at the end of December 2015 to 53 in Q1/2016, with a drop back down to 51.4 in Q2/2016; back to 53.8 in Q3/2016; and continuing flat at 53.64 in Q4/2016. Through 2020, the United States Manufacturing PMI is projected to be 53.82, a figure that doesn't show a whole lot of movement over the next few years.

[Note: United States manufacturing PMI forecasts are projected using an autoregressive integrated moving average (ARIMA) model calibrated using Trading Economics' analysis expectation. The group models the past behavior of United States manufacturing PMI using vast amounts of historical data and adjusts the coefficients of the econometric model by taking into account the group's analysis assessments and future expectations. This forecast for the U.S. Manufacturing PMI was predicted Monday, January 4, 2016.]

About the Author(s)

Clare Goldsberry

Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."

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