Purchasing Slips from September Peak

Don Hogsett, January 16, 2006

Cooling off for a third straight month in most performance metrics, the key U.S. manufacturing sector continued to grow in December, but at a steadily slower pace, recording drop-offs in new orders, production and order backlogs.

In a widely watched report on manufacturing activity and economic health, the nation's purchasing managers said their monthly gauge of manufacturing activity declined by 3.9 percent in December to a level of 54.2 percent, with the rate of growth slowing in most performance metrics.

The Institute for Supply Management's Purchasing Managers' Index has fallen off for three straight months, and is now down 5.2 percentage points from a 13-month high-water mark of 59.4 recorded in September. A reading of 50 percent or more indicates growth in the sector, while anything beneath signals a contraction.

While most of the arrows pointed to continued slowing growth in December, there was considerable cheer for the nation's manufacturers, as the prices of raw materials and supplies showed signs of moderating. The Prices Index slowed by 11 percent to a reading of 63, falling from a level of 74 in November, and an even higher reading of 84 in October.

Among the signs pointing to slower growth, the New Orders Index declined by 4.3 percent to a reading of 55.5 in December. Production slipped by 3.6 percent, to a level of 57 percent. Employment fell by 3.9 percent to a reading of 52.7

In one key shift, order backlogs stopped growing at a slower pace, and actually began to contract, slipping by 3.5 percent to a reading of 49.5 percent, dipping just beneath the break-even mark.

December snapshot
Manufacturing benchmarks
Month-over-month percentage change

Source: Institute for Supply Management
Purchasing Managers' Index -3.9%
New Orders -4.3
Production -3.6
Employment -3.9
Inventories -2.1
Customers' Inventories 4.5
Prices Manufacturers Pay -11.0
Order Backlogs -3.5
Export Orders -4.9
Imports -1.3

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