US Manufacturing: December Update
The ISM Manufacturing Report on Business is released on the first business day of each month and is often hailed as the most important leading indicator. An index number above 50 suggests growth in the manufacturing segment of the economy, and a number below 50 suggests contraction. Here are the highlights for December:
Economic activity in the manufacturing sector grew for the eighth consecutive month
Demand expanded with new orders and overall consumption growing strongly
All six of the largest manufacturing industries, notably petroleum & coal products, registered moderate to strong growth
Business sentiment remains optimistic but absenteeism, short-term shutdowns to sanitize facilities and hiring difficulties are limiting manufacturing growth potential
Source: Institute for Supply Management. Table created by The Macro Mail.
The manufacturing PMI numbers for December illustrate accelerating growth across all components of the manufacturing index. New orders, which lead overall manufacturing, exhibited the strongest growth, suggesting that the manufacturing economy will continue to recover in the coming months.
Sector Performance:
The ISM is particularly useful because it breaks down and ranks the sectors of the manufacturing economy according to growth.
Apparel, Leather & Allied products continues to lead the index. Wood Products and Furniture & Related Products also exhibited strong growth in December, suggesting that the U.S housing sector will continue to perform well.
Notably, Petroleum & Coal products exhibited overall growth for the first time in five months. As the economy continues to grow it is possible that the energy sector, which has so far performed dismally, may be ripe for recovery.
Printing & Related Support Services remains the worst performing sector as COVID-19 and the wave of lockdowns across the U.S continues to put pressure on office-related industries.
Source: Institute for Supply Management. Table created by The Macro Mail.
New Orders:
New orders tend to lead the broader ISM index and can be used as an indication of what the ISM will look like next month.
Similar to the broader index, Apparel, Leather & Allied Products, Wood Products, and most notably Petroleum & Coal products all exhibited very strong growth in new orders, indicating that these sectors may outperform going forward.
Source: Institute for Supply Management. Table created by The Macro Mail.
Growth Profiles:
The chart below illustrates the growth profiles of the top-five performing sectors in the December ISM report over the last six months. Apparel, Leather & Allied products clearly exhibited the strongest growth over the last quarter, whereas the most consistently performing sector over the last six months was wood products.
Source: Institute for Supply Management. Table created by The Macro Mail.
Turning to new orders, the story is similar, with Wood Products demonstrating the most consistent growth over the last six months, and Apparel, Leather & Allied Products outperforming over the last quarter.
The most notable development is the growth in new orders for Petroleum & Coal products. The sector exhibited overall growth for the first time in five months. With new orders strong and WTI crude above $50 the conditions may be right for the energy sector to begin to recover after its dismal performance so far.
Source: Institute for Supply Management. Table created by The Macro Mail.
Purchasing Manager Quotes:
Comments from purchasing managers provide a keen insight into how company insiders view their own growth going forward. Here are the highlights:
“COVID-19 is affecting us more strongly now than back in March. Vendors/service suppliers unable to maintain levels of service due to employee shortages. Logistic issues also hurting us due to coronavirus-related problems.” - Food, Beverage & Tobacco Products
“Our company and industry are continuing to have tailwinds from the COVID-19 pandemic research support for vaccines and treatments. While our services are delayed, many customers are not cancelling outright, and business picked up for us in the last month — especially in China, where business growth is back on track.” - Computer & Electronic Products
“Sales are now exceeding pre-COVID-19 levels, but uncertainty remains through the winter months while COVID-19 is still rampant.” - Miscellaneous Manufacturing
“COVID-19 outbreaks are causing supply chain issues for Tier-1 and Tier-2 suppliers. More work needs to ensure suppliers keep us in the loop with any problem in their supply chain. But end-customer demand for products is keeping production and future outlook positive.” - Transportation Equipment
Current business outlook is strong through the first quarter of 2021. We are anticipating 20 percent growth in sales for 2021. - Fabricated Metal Products
“Business is stronger than expected, with higher demand for many products. Volatility continues due to the very persistent pandemic and associated risks.” - Electrical Equipment, Appliances & Components
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