Sputtering global economies continued to weigh on U.S. manufacturing, as the sector showed continued weakness in December, the Institute for Supply Management reported. ISM's monthly purchasing manager's index registered 48.2, down 0.4% from November's 48.6.
Along with the effects of the global economic softness, noted Neil Shankar of TD Economics, U.S. manufacturing "continues to contend with the protracted slump in energy prices which is weighing on energy related investment and hindering demand for drilling equipment and other heavy machinery." And he added that the sector" is not getting any help from the U.S. dollar which continues to rally making U.S. made products more expensive in foreign markets."
While still in contraction territory, new orders and production showed slight gains, bringing them near the breakeven point. However, the employment index continued to worsen, from 51.3 in November to 48.1 in December.
Prices dropped 2 percentage points in December to 33.5, the 14th month that raw materials prices have fallen and the lowest reading since April 2009.
Inventories showed a slight improvement, up half a percent to 43.5, but analysts said they reflected continued uncertainty about the outlook for the economy.
“The inventory problem in the goods side of the economy is evident in the ISM report," said Daniel J. Meckstroth, chief economist for the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation. "Manufacturers have reduced inventories for the sixth month in a row and the pace of the liquidation accelerated recently.”
“The December ISM report confirms that manufacturing production is going through an inventory adjustment that has dragged production down. The good news is that inventory swings are always temporary and this swing has probably already run its course,” Meckstroth concluded. “The overall economy is being driven by solid job growth and accompanying income and consumption growth. Having a solid base of moderate overall growth allows the manufacturing sector to weather this temporary soft patch. This year will not see the dollar appreciate nearly as much than last (2015), commodity prices will not collapse again, it is unlikely that there will be another severe winter, and the West Coast port strike is over. Without these shocks, manufacturing production will accelerate in early 2016.”
More on the ISM report on IndustryWeek.