January 3, 2025
The Institute for Supply Management’s index of conditions in the manufacturing sector rose 0.9 point in December to 49.3 after climbing 1.9 points in November. This is the highest level for this index since March of last year. A level of 49.3 is associated with a GDP increase of 1.9%. After having risen 2.8% in the third quarter our GDP forecast for the fourth quarter is 2.5% and projected growth for 2025 is 2.9%
The ISM organization does a similar survey for the services sector. The ISM index of conditions in the service sector for December will be released on Tuesday, January 7.
The Institute for Supply Management Chair for the Survey Committee Timothy Fiore said, “U.S. 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 that, “Demand improved, production execution met November’s performance (and companies’ plans), de-staffing continued (but should end soon), and price growth was marginal. Fifty-two percent of manufacturing gross domestic product (GDP) contracted in December, down from 66 percent in November. The share of manufacturing sector GDP registering a composite PMI® calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 49 percent in December, a 1-percentage point increase compared to the 48 percent reported in November. None of the six largest manufacturing industries expanded in December, down from two in November,”
Comments from respondents include the following:
- “Slightly lower due to seasonality and end-of-year destocking.” [Chemical Products]
- “Automotive and powersport volume decreases.” [Transportation Equipment]
- “We are seeing a softening in sales. This is concerning as it’s our peak season.” [Food, Beverage & Tobacco Products]
- “We are constrained by technical labor, despite higher-than-normal backlog.” [Computer & Electronic Products]
- “Significant slowdown in production requirements in the last two months of the year.” [Machinery]
- “Order levels well below forecast projections.” [Fabricated Metal Products]
- “The increase in new orders has our plant at full capacity.” [Electrical Equipment, Appliances & Components]
- “Combo of seasonal factors plus increased demand outlook for 2025.” [Miscellaneous Manufacturing]
- “There is definitely an uptick this month, though not a stable one.” [Primary Metals]
- “The orders have increased slightly due to seasonal restocking.” [Plastics & Rubber Products]
The orders component rose 2.1 points in December to 52.5 after climbing 3.3 points in November, 1.0 point in October, and 1.5 points in September. The orders component expanded in December for the second consecutive month after contracting for seven months. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. Fiori noted that, “Of the six largest manufacturing sectors, two (Food, Beverage & Tobacco Products; and Computer & Electronic Products) reported increased new orders. Panelists noted an improved level of demand performance, with a 1.5-to-1 ratio of positive comments versus those expressing concern about near-term demand, an improvement compared to November,”
The production component jumped 3.5 points in December to 50.3 after climbing 0.6 point in November. Prior to this month the production component was in contraction territory for six months. Fiore said that, “Production levels were stable to November’s performance, indicating that re-planning factory floor activity has likely been completed, head counts are likely synchronized with factory demand, and panelists are fully staffed and aligned for 2025,”
The delivery performance of suppliers to manufacturing organizations rose 1.4 points in December to 50.1 after having declined 3.3 points in November This means that supplier deliveries were slightly slower in December . Fiori noted that, “Supplier deliveries moved into ‘slower’ territory as supplier delivery performance continues to meet the expectations of panelists’ customers,”
The employment index declined 2.8 points in December to 45.3 after having jumped 3.7 points in November. “The index contracted for the seventh consecutive month and the 14th out of the last 15 months. Of the six big manufacturing sectors, none expanded employment in December. Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes. This action is supported in December by the approximately 1-to-2 ratio of hiring versus staff-reduction comments, compared to a 1-to-1.5 ratio the previous month, meaning more workforce reduction activity is occurring as we close 2025,” An employment index above 50.3 is generally consistent with an increase in the BLS data on manufacturing employment.
The backlog of orders surged by 4.1 points in December to 45.9 after having declined 0.5 point in November. Fiore noted that, “In December, the index recorded its best performance since April 2024 (45.4 percent), as new orders coupled with stable production levels slowed the rate of declining backlogs,”
Customer inventory levels declined 1.7 points in December to 46.7 after rising 1.6 points in November. Fiore said that,“Customers’ inventory levels in December have dropped to the high side of ‘too low.’ Panelists are reporting that the amounts of their products in their customers’ inventories suggest a demand level that is positive for future production,”
With a big increase in the orders index in the orders index and a small decline in customer inventories the ratio of orders to inventories rose 0.1 to 1.1 in December. The 1.1 level for this index suggests that production should climb somewhat in the months ahead.
The prices paid component rose 2.2 points in December to 52.5 after declining 4.5 points in November. Fiore noted that, “The Prices Index indicated increasing prices in December for the third consecutive month, but at weak rates. Aluminum, basic chemicals, copper and natural gas registered increases, offset by steel, plastic resins and diesel fuel moving down in price. Fourteen percent of companies reported higher prices in December, compared to 12 percent in November,”
After having risen 2.8% in the third quarter we expect GDP to increase by 2.5% growth in the fourth quarter and then expand 2.9% in 2025. The economy is showing few signs of slowing down.
Stephen Slifer
NumberNomics
Charleston, S.C.
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