The ISM manufacturing index indicated contraction in December.
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Bloomberg reports the reading fell below the median forecast of 49 in its survey of 72 economists.
Struggling overseas demand and declines in commodity prices that are hurting investment in energy and agriculture continue to limit orders for American manufacturers. When the dollar gains in value, it makes U.S.-made goods more expensive for foreign buyers. Jim O’Sullivan, US economist for High Frequency Economics, noted the ISM manufacturing index represents only a small part of the US economy.
Factories globally ended the year on a weak note, contributing to a selloff in stocks worldwide on Monday.
The manufacturing sector has slumped over the past 12 months. “We expect the non-manufacturing index to remain well above 50 in this week’s report for December”. Measured overall, new order levels expanded only fractionally and at the weakest pace since September 2009. The PMI was at 48.2% in December, down from 48.6% in November.
Looking ahead, Holcomb said that for growth to return in earnest, a rebound in new orders needs to come in across the board, which could take at least a couple of months to get things truly moving in the right direction again. Companies were cutting back on stockpiles of raw materials, he said.
Markit’s latest reading on U.S. manufacturing activity in December fell slightly to 51.2 from a preliminary reading of 51.3, though this reading was better than 51.1 that was estimated. The production gauge improved to 49.8 from 49.2 in November. That raises the likelihood that the US manufacturing sector will report a net loss of jobs when the government issues the December employment report on Friday.
“Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December”, he added. Manufacturers also said their customers still held too much in stockpiles.
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Prices are continuing their downward trend, decreasing 2.0% to 33.5% in December from 35.5% in November. The prices measure has been in contraction since October 2014.
