Manufacturing Back in Growth Mode

Don Hogsett, January 15, 2007

Bounding back strongly from weakness the prior month, U.S. manufacturing activity improved during December, growing slowly — but still growing.

That marked a substantial improvement from November, when the manufacturing sector suffered a major setback, actually slowing down for the first time in more than a year, the nation's purchasing managers reported in a monthly canvass of manufacturing companies.

With the sector back in a growth mode, the December Purchasing managers' Index compiled by the Institute for Supply management (ISM), jumped up by 1.9 percentage points to a reading to 51.4, rebounding from a weak 49.5 in November. A reading of more than 50 indicates growth in this key sector of the U.S. economy, while anything beneath 50 signals contraction.

"Manufacturing proved resilient in December," said Norbert Ore of the purchasing managers' trade group. Gains in new orders and production made significant gains, he said, boosting the sector back above the break-even point. New orders increased by 3.4 percentage points, jumping up to a level of 52.1 from 48.7 the preceding month. Production levels surged by 3.3 percentage points to a level of 51.8, climbing back above the break-even mark.

Employment ticked up modestly, by half a percentage point, to a reading of 49.7, but still hovered beneath the line that separates contraction from growth.

In a solid piece of good news, the index measuring the price of supplies and raw materials plunged by 6.0 percentage points from 53.5 in November to a level of 47.5 in December, signaling that prices declined. "The Prices Index is trending downward, relieving some of the inflationary pressure that has troubled manufacturing since the middle of 2003," said Ore.

December Snapshot
Manufacturing benchmarks
Month-over-month percentage change

Source: Institute for Supply Management
Purchasing Managers' Index 1.9%
New Orders 3.4
Production 3.3
Employment 0.5
Inventories -1.3
Customers' Inventories 0.0
Prices Manufacturers Pay -6.0
Order Backlogs -1.5
Export Orders -2.6
Imports -1.0

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