Manufacturing Contracts Again in December

Manufacturing Sector Contracts Again in December

Jan. 3, 2024
December caps off an "unimpressive year as the sector contracted in every month of 2023," says Oxford Economics.

The most recent Manufacturing ISM Report on Business relased on January 3, said that the sector contracted in December for the 14th consecutive month following a 28-month period of growth

Matthew Martin, US Economist at Oxford Economics, offered the following anaysis:

  • The ISM Manufacturing PMI improved modestly in December but caps off an unimpressive year as the sector contracted in every month of 2023. Declining borrowing costs as the Fed begins its pivot towards rate cuts in mid-2024 should help limit the downside to business investment, and a weakening dollar will help support export orders as goods become relatively less expensive abroad.
  • However, we expect these will be more than offset by a contraction in goods consumption in the first half of the year as still-high interest rates and tight lending conditions weigh on demand for big ticket items. With customer inventories already sufficient, manufacturers will wind down inventories rather than add to stockpiles as demand declines.
  • The ISM Manufacturing PMI improved 0.7ppt to 47.4 in December, with all components but production in contraction territory. Increases in the production and employment indexes were led by the transportation equipment industry, which is a result of the resolved UAW strike, and with sector-wide new orders and backlog of orders continuing to contract a reversal is likely next month. The prices paid index reversed its gain from the prior month, with raw material prices contracting at a faster rate due to the decline in energy prices.

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