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United States PMI December 2019

United States: ISM manufacturing index tumbles to over decade low at close of 2019

The Institute for Supply Management (ISM) manufacturing index sank to 47.2 in December from 48.1 in November, underwhelming market expectations of 49.0 and marking the poorest performance since June 2009. Consequently, the index remained below the 50-threshold that separates contraction from expansion in the sector.

The further deterioration in December was relatively broad based. Production declined for the fifth consecutive month and at a notably sharper rate amid weak demand metrics. New orders also contracted in the month, dragged on by falling export orders. Moreover, this weighed on the sector’s labor market, with job losses deepening in December. Likewise, customers’ inventories fell further and remained “too low” according to survey respondents, although this bodes well for factory output in the first quarter. Meanwhile, backlogs of work fell for the eighth month running.

Turning to inputs, inventories shrank at a more moderate clip than in the prior month. Although supplier delivery times lengthened, supplier capacity remains sufficient to support current output levels. Meanwhile, imports continued to contract, albeit at a weaker rate. On the other hand, prices returned to growth for the first time in six months in December, pushed up by higher raw material prices particularly for base metals. Overall, supply chains showed some stress in December.

Comments from ISM respondents suggest manufacturers are heeding caution moving into the new year, as one respondent noted: “Cautiously optimistic is the rule these days. Sales are decent, but we’re wondering what 2020 will bring. Still hedging that it will be successful — but maybe not as much as this year.”

Timothy R. Fiore, chair of the Institute for Supply Management noted that: “Global trade remains the most significant cross-industry issue, but there are signs that several industry sectors will improve as a result of the phase-one trade agreement between the U.S. and China.”

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