Manufacturing softened in December to its lowest level in more than a decade, the Institute for Supply Management said today in a monthly report.
The Tempe, Ariz.-based group’s manufacturing index, known as the PMI, slipped to 47.2 percent last month. That was the lowest level for the index since June 2009 when it registered at 46.3 percent. The PMI was 48.1 percent in November.
New orders, production and employment weakened compared with November, the institute said.
The monthly report is based on a survey of 350 purchasing and supply executives. A reading above 50 percent indicates economic growth while below 50 percent shows contraction. December was the fifth consecutive month with an index showing contraction. The PMI averaged 51.2 percent for 2019.
The index is considered a leading economic indicator and a barometer of where manufacturing is heading. However, the institute issued a six-month forecast in December for manufacturing to recover in 2020 with a steady expansion. The forecast is based on input from the same executives who are surveyed for the monthly index.
Manufacturers cut inventory in December to prepare for 2020, Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee, said on a conference call. Some manufacturing companies may have had extra down time during the holiday period, he said.
“We’re in a much better position at end of December than we were at the end of November,” Fiore said. “I think we’re going into Q1 in a pretty good position.”
In December, 15 of 18 industries reported economic contraction. The only sectors reporting economic expansion were food, miscellaneous manufacturing and computer products.
ISM said its New Orders Index fell to 46.8 percent last month, down from 47.2 percent in November. Twelve industries reported a decline in orders while three said orders increased.
The group’s Production Index declined to 43.2 percent in December, down from 49.1 percent in November. Three industries, including machinery, said output rose while 14 said production fell.
The Employment Index registered 45.1 percent in December compared with 46.6 percent the month before. Two industries reported job growth while 11 said employment fell.
In the new year, two developments may have an impact on the manufacturing economy.
President Donald Trump has said he will sign a phase-one trade deal with China in Washington on Jan. 15. The pact, which will lead to additional talks, may cool down a U.S.-China trade war.
“There are lots of rumors and positive sentiment,” Fiore said. “We’ve been through lots of those cycles in the past two-and-a-half years.”
Boeing Co. said in December it will stop production of its 737 Max aircraft pending regulators approving its return to the air. The 737 Max was grounded last year following two crashes that killed 346 people.
The company had sought to return the 737 Max to service before the end of December. The suspension of production will “be a drag for four to six months” on the transportation equipment sector, Fiore said.