U.S. production shows signs of stabilizing in December

The U.S. manufacturing industry, which has been in a state of contraction, showed signs of potential recovery in December, with the pace of decline slowing, highlighted by a moderate recovery in production, improvement in sales, and improvement in factory employment. The Institute for Supply Management (ISM) reported that its manufacturing purchasing managers index (PMI) rose to 47.4 in December from a stagnant 46.7 in the previous two months. This marked the 14th consecutive month that the PMI has remained below the 50 threshold, indicating contraction in the sector, the longest period of contraction since August 2000 to January 2002.

Economists expected the PMI to be slightly lower at 47.1. The ISM noted that a PMI reading below 48.7 generally signals a contraction in the overall economy over time, although the PMI and other factory surveys may overestimate the extent of manufacturing weakness. Hard data paints a more resilient picture, with durable goods orders showing strong year-over-year growth in November, although declines have slowed in recent months despite softer factory production.

The overall economy continued to show expansion, with an annual growth rate of 4.9% in the third quarter. Forecasts for the fourth quarter from October to December are more optimistic, with some expecting growth to reach 2.0%.

The ISM survey’s new orders sub-index showing future demand fell to 47.1 in December from 48.3 in November. But factory production fell. The sub-index rose to 50.3 from 48.5 in November. Production is likely to improve further as customer inventory levels decline, suggesting the potential for increased production to meet demand in the future.

Manufacturers pointed to the need to reduce inventory levels in November, while lower demand continued to depress factory-gate prices, suggesting that commodity deflation may continue. The survey’s price index fell to 45.2 from a seven-month high of 49.9 in November.

The survey showed a slight improvement in supplier deliveries, rising to 47.0 from 46.2 last month. Readings below 50 indicate faster delivery.

On the employment front, factory employment showed signs of rising, with the index rising to 48.1 from 45.8 in November. While the indicator does not consistently predict manufacturing payrolls in the government’s employment report, preliminary estimates suggest manufacturing employment could increase by 5,000 jobs in 2019. Employment rose sharply by 28,000 jobs in December, partly due to the return of UAW members.

In terms of broader non-farm payrolls data, 168,000 jobs are expected to be added in December, following a gain of 199,000 jobs in November. The unemployment rate is expected to rise from 3.7% to 3.8%. The government’s December employment report is expected to be released on Friday.

Reuters contributed to this article.

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