The U.S. manufacturing economy contracted for a second straight month, the Institute for Supply Management said today.
The Tempe, Ariz.-based group said its manufacturing index, known as the PMI, registered at 48.4 percent in December. That was down from 49 percent in November. December marked the lowest index reading since manufacturing began recovering from the COVID-19 pandemic.
A PMI above 50 percent indicates economic expansion, below that mark indicates contraction.
The manufacturing economy dipped into contraction in November after a 29-month run of expansion. New orders for manufactured goods dropped in the second half of 2022. That began to be felt in December, ISM said.
“We’re waiting for demand to come back,” Timothy R. Fiore, chair of the group’s Manufacturing Business Survey Committee, said on a conference call.
In December, he said, there were “clear indications that demand softened again.”
The PMI is based on a survey of executives in 18 industries. In December, only two industries reported economic growth, primary metals and petroleum & coal products. Thirteen industries reported economic contraction, including fabricated metal products, machinery, transportation equipment, and miscellaneous manufacturing.
The PMI is considered a leading economic indicator, a barometer of manufacturing is heading.
Fiore said the first half of 2023 may be bumpy.
“The first half of 2023 will be pretty sluggish,” he said. The group expects a rebound in the year’s second half, he said.
ISM’s New Orders Index registered at 45.2 percent in December, down from 47.2 percent the month before. It was the fourth straight month of a decline in new orders. In December, only three of 18 industries reported a gain in orders.
The institute’s Production Index fell into negative territory last month at 48.5 percent. That was down from 51.5 percent in November. Four of 18 industries reported an increase in output, with eight reporting a decline.
The group’s Employment Index was 51.4 percent in December. That was an improvement from 48.4 percent in November. Five industries reported employment gains, with six reporting job cuts.
Manufacturing, like other sectors of the economy, is being affected by interest rate increases by the Federal Reserve Board. The Fed is attempting to cool the economy to curb inflation.
“Interest rates take some time to have some impact,” Fiore said on the conference call.
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