According to the Institute for Supply Management, the U.S. manufacturing sector ended its 10-month long economic expansion in December, even though overall economic activity increased for the 74th consecutive month. The interpretation is notable because most economists’ standard for identifying a “recession” is two consecutive months of negative economic growth.
The manufacturing growth rate in December was 47.7%, according to the Purchasing Managers Index. A PMI in excess of 41.9%, over a period of time, is an indication of overall economic expansion, so the interpretation of the December report is that the larger U.S. economy is growing even as the manufacturing segment is not. “The past relationship between the PMI and the overall economy indicates that the PMI average for January through December (52.2%) corresponds to a 3.2% increase in real gross domestic product (GDP) annually. In addition, if the PMI for December (47.7%) is annualized, it corresponds to a 1.8% increase in real GDP annually,” according to the ISM statement.
“Business is good,” observed one survey respondent from the Primary Metals market segment, “but higher raw-material prices are squeezing margins.”
Despite the overall reversal, within the manufacturing sector seven industries reported growth. These are, in order of December growth rates: Apparel, Leather & Allied Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; Primary Metals; and Miscellaneous Manufacturing.
Speaking of manufacturing, ISM chairman Norbert J. Ore, “The recent trend has been toward slower growth. However, December was apparently a very tough month as New Orders, Production, and Employment were all below the break-even mark of 50%. Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better. Slower demand appears to be more of a problem than excessive inventories based on the respondents’ comments.”
The ISM is a professional association of supply-management professionals, and it issues monthly reports on purchasing activity for U.S. businesses, regionally and nationally. The “Manufacturing ISM Report On Business” is a nationwide study based on data compiled from purchasing and supply executives. Membership for the ISM’s Manufacturing Business Survey Committee is diversified by NAICS, and based on each industry's contribution to U.S. gross domestic product.
Manufacturing Growth Reversed in December
Primary metals hit by raw-materials prices