The U.S. manufacturing sector contracted in December for a 14th consecutive month, but at an improved rate vs. the previous two months. That’s according to the Institute for Supply Management’s latest Manufacturing ISM Report on Business, from which its monthly Purchasing Managers Index (PMI) is a well-regarded barometer for the health of U.S. manufacturing.

Shared Jan. 3, the December PMI showed an overall figure of 47.4, up 0.7 percentage points from November and October. Any PMI reading below 48.7% indicates contraction over a period of time. The December PMI indicates that the overall industrial economy contracted for a third straight month after one month of growth in September (49.0), preceded by nine straight months of contraction and 30 months of expansion from June 2020 to November 2022.

ISM Manufacturing Business Survey Committee Chair Timothy Fiore noted that the past relationship between the Manufacturing PMI and the overall economy indicates that December’s reading corresponds to a change of -0.5% of real GDP on an annualized basis.

Of the PMI’s 10 factoring indices, six moved higher during December vs. November. The index for production gained 1.8 points and into expansion territory at 50.3; employment gained 2.3 points to 48.1; supplier deliveries ticked up 0.8 points to 47.0; backlog of orders jumped 6.0 points to 45.3; new export orders gained 3.9 points to 49.9; and imports edged up 0.2 points to 46.4. Meanwhile, new orders fell 1.2 points to 47.1; inventories dipped 0.5 points to 44.3; customers’ inventories fell 2.7 points and into contraction territory at 48.1; and prices fell 4.7 points to 45.2.

Supplier deliveries is the only index that is inversed – a reading above 50.0 indicates slower deliveries, which ISM notes is typical as the economy improves and customer demand increases.

Manufacturing at a Glance – December 2023

“Demand remains soft, and production execution is stable compared to November, as panelists’ companies continue to manage outputs, material inputs and labor costs,” Fiore said in ISM’s December Manufacturing PMI report. “Suppliers continue to have capacity. Manufacturing supplier lead times continue to decrease (supported by panelists’ comments), a positive for future economic activity.”

Fiore added that 84% of manufacturing gross domestic product (GDP) contracted in December, up from 65% in November, and that the share of sector GDP registering a composite PMI calculation at or below 45% — a good barometer of overall manufacturing weakness — was 48% in December, compared to 54% in November and 35% in October. 

None of the six biggest manufacturing industries registered growth in December, and of the 17 total manufacturing industries that ISM tracks, only one — primary metals — reported growth.

Here is a sampling of PMI survey respondent commentary that ISM provided for December:

• “Anticipation of the U.S. Federal Reserve holding off on interest-rate changes will encourage more companies to spend on capital investments again. As budgets get approval after the start of the calendar year, this should help drive investment and increase manufacturing activity once again.” [Computer & Electronic Products]
• “Overall, order intake has picked up over the last quarter and a backlog of projects is beginning to accumulate.” [Chemical Products]
• “Demand is up across the board. We are starting to see back orders grow again.” [Transportation Equipment]
• “Commodity costs are decreasing. Supply is readily available, and customers are still ordering to last year’s volumes.” [Food, Beverage & Tobacco Products]
• “Business is slowing. Finished goods inventories are growing.” [Machinery]
• “We are forecasting a somewhat strong year for 2024. We’re currently mildly optimistic for how next year will play out.” [Fabricated Metal Products]
• “We are seeing stronger demand from our American Automotive OEM customers now that the United Auto Workers (UAW) strike has been resolved. Looking at a very strong first quarter of 2024.” [Primary Metals]
• “Higher financing costs have diminished demand for residential investment. Customers are delaying a portion of their plans until borrowing costs are reduced. We are impacted with reduced new orders, diminished backlog of orders and uncertain short-term demand for products and services.” [Wood Products]
• “Finishing the year similar to 2022; however, 2023 was more erratic. Working to restore inventory position to ensure we have appropriate safety stock.” [Electrical Equipment, Appliances & Components]
• “Business conditions are good; sales and production are tracking in accordance with forecasts.” [Miscellaneous Manufacturing]