ISM Manufacturing: Weakest in 28 Years

Economic activity in the manufacturing sector fell to a 28-year low in December, according to a report released Friday.

The Institute for Supply Management [ISM], a purchasing management association based in Tempe, Ariz., said manufacturing contracted in December at a rapid rate. The Purchasing Managers’ Index registered 32.4%, 3.8 percentage points lower than the 36.2% reported in November. That’s the lowest reading since June 1980, when the index stood at 30.3%.

The output components of the overall index continued to decline as none of the manufacturing industries reported growth.

• The index for new orders registered 22.7% in December, 5.2% points lower than the 27.9% registered in November. That’s the lowest reading on record going back to January 1948.

• The production index decreased to 25.5% in December, a decrease of 6 percentage points from the 31.5% reported in November.

• ISM’s Employment Index registered 29.9% in December, which is a decrease of 4.3 percentage points when compared to the 34.2% reported in November. This is the lowest reading for the employment index since November 1982 when the index registered 28.2%.

• The Supplier Deliveries Index came in at 44.9%, 3.5 percentage points lower than the 48.4% registered in November.

• Inventories Index registered 38.8% from 39.1% reported in November.

• The prices paid index declined to 18% from 25.5%, indicating manufacturers are paying lower prices on average when compared to November. This is the lowest level for the index since June 1949.

• The Backlog of orders index fell to 23% in December from 27% in November. The index has fallen to its lowest level since ISM began tracking it in January 1993. Manufacturers continue to reduce inventories and shut down capacity as a result of slow pace in economic activity.

Based on today’s report, (ISM reports are considered a forward-looking barometer of manufacturing activity and represents approx. 12% of the economy), the U.S. manufacturing will continue at this point to weaken in the months ahead. However, the pace of deterioration will not be as intense as in the past few months, meaning – the ISM index should start to move up from these levels, while staying below 50.

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