Manufacturing PMI® at 58.7%

Economic activity in the manufacturing sector grew in December, with the overall economy achieving a 19th consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

“The December Manufacturing PMI® registered 58.7%, a decrease of 2.4 percentage points from the November reading of 61.1%. This figure indicates expansion in the overall economy for the 19th month in a row after a contraction in April 2020. The New Orders Index registered 60.4%, down 1.1 percentage points compared to the November reading of 61.5%. The Production Index registered 59.2%, a decrease of 2.3 percentage points compared to the November reading of 61.5%. The Prices Index registered 68.2%, down 14.2 percentage points compared to the November figure of 82.4%. The Backlog of Orders Index registered 62.8%, 0.9 percentage point higher than the November reading of 61.9%. The Employment Index registered 54.2%, 0.9 percentage point higher compared to the November reading of 53.3%. The Supplier Deliveries Index registered 64.9%, down 7.3 percentage points from the November figure of 72.2%. The Inventories Index registered 54.7%, 2.1 percentage points lower than the November reading of 56.8%. The New Export Orders Index registered 53.6%, a decrease of 0.4 percentage point compared to the November reading of 54%. The Imports Index registered 53.8%, a 1.2-percentage point increase from the November reading of 52.6%.”

Fiore continues, “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with indications of improvements in labor resources and supplier delivery performance. Shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products continue to plague reliable consumption. Coronavirus pandemic-related global issues — worker absenteeism, short-term shutdowns due to parts shortages, employee turnover and overseas supply chain problems — continue to impact manufacturing. However, panel sentiment remains strongly optimistic, with six positive growth comments for every cautious comment, down slightly from November. ISM’s Semiannual Economic Forecast, released in December, indicates a strong 2022 performance expectation in terms of revenue growth and profitability. Demand expanded, with the (1) New Orders Index growing, supported by continued expansion of new export orders, (2) Customers’ Inventories Index remaining at a very low level and (3) Backlog of Orders Index staying at a very high level. Consumption (measured by the Production and Employment indexes) grew during the period, with a combined negative 1.4-percentage point change to the Manufacturing PMI® calculation. The Employment Index expanded for a fourth straight month, with some indications that ability to hire is improving, though somewhat offset by the continued challenges of turnover and backfilling. Inputs — expressed as supplier deliveries, inventories, and imports — continued to constrain production expansion, but there are clear signs of improved delivery performance. The Supplier Deliveries Index again slowed while the Inventories Index expanded, both at a slower rate. In December, the Prices Index increased for the 19th consecutive month, at a slower rate (a decrease of 14.2 percentage points), indicating that supplier pricing power continues to rise, but to a lesser degree.

“All of the six biggest manufacturing industries — Chemical Products; Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Petroleum & Coal Products, in that order — registered moderate-to-strong growth in December.

“Manufacturing performed well for the 19th straight month, with demand and consumption registering month-over-month growth. Meeting demand will remain a challenge, due to hiring difficulties and a clear cycle of labor turnover at all tiers. For the second month in a row, Business Survey Committee panelists’ comments suggest month-over-month improvement on hiring, offset by backfilling required to address employee turnover. Supplier delivery rate improvement was indicated by the Supplier Deliveries Index softening in December. Transportation networks, a harbinger of future supplier delivery performance, are still performing erratically; however, there are signs of improvement,” says Fiore.

The 15 manufacturing industries reporting growth in December — in the following order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Textile Mills; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Chemical Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; Primary Metals; and Petroleum & Coal Products. The three industries reporting a decrease in December compared to November are: Wood Products; Printing & Related Support Activities; and Paper Products.