ISM manufacturing data shows December decline

When I was wrapping up my winter vacation last week, the Institute for Supply Management issued the final edition of its Manufacturing Report on Business. Even though I was not “on the clock” when the report was issued I wanted to file a recap of the December data, as this report always provides a unique snapshot of what is happening in the economy on multiple fronts in the form of things like new orders, employment, and inventories, among others.

The ISM reported that the PMI, the report’s key index to measure growth, dropped 3.2 percent to 55.5 (a PMI of 50 or greater represents growth). Even with this decline, the PMI remains in a decent spot over all.  December’s PMI is 0.3 percent below the 12-month average of 55.8 and 3.6 percent below its highest reading, going back to the 59.1 recorded in March 2011.

A look at some of the other key metrics in the report provided a bit of a mixed bag, including:
-New orders, referred to as the “engine that drives manufacturing” seeing a steep 8.7 percent drop from 66.0, which was its highest level since August’s 66.7 to 57.3. But new orders still showed growth for the 19th month in a row as the index topped 52.1, its growth benchmark;
-Production dropped 5.6 percent from 64.4 to 58.8, and was down from October’s
64.8, which is its highest level since the 65.3 recorded in May 2004 while still showing growth for the tenth straight month;
-Employment was up 1.9 percent to 56.8, growing for the 18th month in a row;
-Supplier deliveries slowed at a faster rate up 2.5 percent to 59.3;
-Inventories fell 6.0 percent to 45.5; and
-Prices also saw a 6.0 percent slide to 38.5

With the economy in a better place at the beginning of 2015 than it has been at the same time in recent years, this report could be viewed as less than great. But as by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee, always tells me in our monthly interview (vacations got in the way this time), “one month does not make a trend” one way or another.

And in his comments in the report, Holcomb cited different factors having an impact on the manufacturing outlook, as well as the general economy, such as falling oil prices having a positive impact, while the ongoing West Coast ports slowdown having a negative impact on things like import growth.

These things and others were also noted in the respondents’ comments section of the ISM report, with a textile mills shippers noting that the port issues are creating delays for imported goods, while an apparel, leather and allied products respondent described falling energy prices as a blessing and a curse, with the respondent saying his company may “experience downside as projects are canceled by energy companies, but suspect manufacturing in the US will improve driving upside in that space.”

To be sure, different metrics have different impacts for the ISM respondents whom represent 18 manufacturing sectors, 11 of which reported growth in December. 

But given the largely positive economic indicators we are seeing, it stands to reason that, even with a bit of an end of the year stumble, manufacturing is on pretty stable footing early in the New Year. That does not mean things will stay that way, though, but it is still a pretty good spot to be in, considering how less than positive things were not all that long ago.