The US Purchasing Managers Index (PMI) for December was released late last week by the Institute for Supply Management (ISM), and came in at a level of 49.3, up from 48.4 in November, but again below the key 50 mark that separates US manufacturing expansion from contraction.

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The US PMI had previously been in contraction territory for 17 straight months until it poked its head into expansion in March of 2024 but has fallen back to contraction now in each of the last nine months.

The overall economy continued in expansion for the 56th month after one month of contraction in April 2020. The PMI tracks closely but not exactly with the overall US economy.

A Manufacturing PMI above 42.5, over a period of time, generally indicates an expansion of the overall economy, according to ISM.

The other PMI numbers we track were mixed, stronger than most months in the past year.

In modest good news, the New Orders Index continued in expansion territory for the second month after seven months of contraction, strengthening to 52.5%, 2.1 percentage points higher than the 50.4 recorded in November, in good news for future US manufacturing activity.

The December reading of the Production Index (50.3) was 3.5 percentage points higher than November’s figure of 46.8, returning to expansion after six months in contraction.

The Prices Index was in expansion territory for the third straight month. That means most companies saw an increase in the cost of components, materials and other inputs (above 50 = rising prices) in December.

However, the Backlog of Orders Index registered 45.9, up 4.1 percentage points compared to the 41.8 recorded in November. That means the order book of most companies is shrinking, with the index level still well below the 50 mark.

The Supplier Deliveries Index indicated marginally slower deliveries, registering 50.1, 1.4 percentage points higher than the 48.7 recorded in November.

Supplier Deliveries is the only ISM index that is inversed, with a reading of above 50 indicating slower deliveries, which is typical as the economy improves and customer demand increases - or the reverse.

The Inventories Index came in at 48.4, up 0.3 percentage point compared to November’s reading of 48.1, but with the score below 50 indicating inventory levels at companies are decreasing.

Said Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee: “US manufacturing activity contracted again in December, but at a slower rate compared to November. Demand showed signs of improving, while output stabilized and inputs stayed accommodative.”

He added: “Demand improved, production execution met November’s performance (and companies’ plans), and de-staffing continued (but should end soon).”

As always, the ISM report provides a graphic of the PMI scores the last 12 months, which as can be seen indicates the measure has been below the key 50 for the past year and actually since November 2022, with the exception of March 2024. It is now averaging just 48.3 over the past year.

Source: ISM

Of the 18 sectors tracked by ISM, just seven saw growth in November. Those were, in growth order: Primary Metals; Electrical Equipment, Appliances & Components; Wood Products; Furniture & Related Products; Paper Products; Miscellaneous Manufacturing; and Plastics & Rubber Products.

As always, there were some interesting comments from PMI survey respondents.

“We are seeing a softening in sales. This is concerning as it’s our peak season,” said one manager in the food and beverage sector.

“We are constrained by technical labor, despite higher-than-normal backlog,” commented a manager in the computer & electronic products industry.

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