The December ISM manufacturing index was 48.4, down from 49 in November but about as expected. The last time this sector was in contraction was during the shutdowns and before that in the 2nd half of 2019 in response to the China tariffs (which for only political reasons still exist). New orders fell another 2 pts to 45 and it’s the 4th straight month below 50 while backlogs printed 41.4 vs 40 in November but still 6 pts below its 6 month average. Inventories at the manufacturing level rose slightly and fell a touch with customers (though still below 50). ISM said, “Panelists’ companies continue their efforts to reduce their total supply chain inventories in preparation for a further economic slowdown, indicated by the contraction in new orders, slow expansion in manufacturing inventories and the ‘just right’ level of customer inventories.” Exports were down by 2.2 pts m/o/m and in contraction for a 5th straight month. Imports dropped 1.5 pts to 45.1. After falling below 50 in November, employment rose 3 pts to 51.4 (though “Labor management sentiment continued to shift, with a number of panelists’ companies reducing employment levels through hiring freezes, attrition, and since November, layoffs” said ISM). Supplier deliveries showed continued easing in the supply chain and coincident with this, prices paid declined by 3.6 pts to 39.4, the lowest since the shutdowns. Specifically on prices paid, “Price declines continue to be driven by relaxation in energy markets, steel, aluminum, chemicals, plastics, corrugate as well as lower freight costs.”
Of the 18 industries surveyed, only 2 saw growth (metals and petro/coal) with 13 seeing a drop in business. The balance saw no change. This compares with 6 that grew in November, 8 in October and 15 back in June. The chemical industry in particular, whose products end up in just about everything, has contracted for a 5th straight month. A company in that industry said “Customer demand continues to be depressed. While 2023 pipeline is looking very positive, current demand is significantly down.”
Here are a few other notable quotes:
“Orders are really slowing down in the original equipment sector. We haven’t seen a major output decrease because we are still eating away at our back orders.” [Transportation Equipment]
“Skilled labor shortages are huge, putting a lot of pressure on existing personnel. Electronic components still a major supply chain issue, particularly if the component you need is not the current hot technology.” [Computer & Electronic Products]
“The continued uncertainty in the economy has resulted in customers delaying their commitments for capital purchases, which is impacting our fourth quarter sales and lowering our forecast for the first quarter of 2023.” [Machinery]
Bottom line, the 10% of the US economy that is manufacturing is contracting now for a 2nd straight month.
ISM Mfr’g
New Orders
Prices Paid
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.