Manufacturing expansion slowed significantly in December as new orders, production and employment growth all cooled, the Institute for Supply Management said in a monthly report.
The group’s manufacturing index, known as the PMI, slipped to 54.1% last month. That was down from 59.3% in November. December was the lowest PMI of 2018.
“We had been bouncing across the top and we’ve now stepped down a level,” Timothy R. Fiore, chair of the Tempe, AZ-based group’s Manufacturing Business Survey Committee, said on a conference call. “This came out of left field. There’s a lot of turbulence going on. We’ll have to see what January brings us.”
The ISM report is based on a survey of 350 purchasing and supply executives. A reading above 50% indicates a growing manufacturing economy. Below 50% indicates economic contraction. November was the 28th straight month with a PMI reading over 50%.
The PMI is considered a leading economic indicator. It usually doesn’t change, up or down, as drastically as the change between November and December. What’s more, ISM last month released its semi-annual economic forecast. In that report, the institute said it expected manufacturing growth to continue in 2019 but at a slightly slower pace than 2018. The forecast also is based on the survey of purchasing and supply executives.
‘Definitely An Adjustment’
“There was no real indication this was brewing at the time our semi-annual was coming in,” Fiore said of the December PMI. “History has shown we come down slowly. We don’t go off a cliff. It’s definitely an adjustment.”
Eleven of 18 industries reported economic growth last month, including textiles, transportation equipment, miscellaneous manufacturing and primary metals. Six industries reported economic contraction, including fabricated metal products and petroleum and coal products.
The survey indicated continuing concern over trade. The U.S. and China currently trying to negotiate trade differences and have paused a trade war.
The biggest drag on the PMI came from new orders. The group’s New Orders Index plunged to 51.1% from 62.1%. During most of 2018, new orders had been one of the major strengths behind the PMI. In December, only six industries reported an increase in orders, including machinery, primary metals and transportation equipment. Five industries reported declining orders, including fabricated metal products. Seven industries reported no change.
ISM’s Production Index fell to 54.3% in December from 60.6% the month before. Ten industries reported higher production while four reported cutbacks.
The group’s Employment Index slipped to 56.2% last month from 58.4% the month before. Nine industries reported adding workers. Three reported employment cutbacks and six reported no change.