The Institute for Supply Management’s purchasing managers’ index (PMI) edged higher, from a contracting 49.5 in November to a slight expansion of 50.7 in December. While the PMI is above the threshold figure of 50 which signifies net growth, it is also not growing with any gusto. Indeed, in the buildup to the fiscal cliff negotiations that just ended, manufacturers remained quite anxious, dampening production and sales. Indeed, in the last seven months of 2012, the PMI was below 50 four times, and overall manufacturing activity was reduced from what was seen earlier in the year.

On the positive side, though, it was nice to see manufacturers end the year with a net expansion, even a more lackluster one. The index for new orders was unchanged at 50.3, growing for the fourth consecutive month (but just barely). Meanwhile, the pace of production eased somewhat, slowing from 53.7 to 52.6. There were two notable areas of strength. First, export orders – which have been a real challenge for much of the past year – shifted from contraction (47.0) to expansion (51.5). This is definitely good news for the industry. Similarly, hiring also picked up, rising from 48.4 to 52.7.

The sample comments tend to support this mixed view of the economic world, with some signs of increased demand even as manufacturers were uncertain about the future. One respondent said, “We are seeing stabilization of orders and costs as well as production capacity for the first time in months.” Yet, others tended to echo the sentiment of the fabricated metal producer who cautioned that future conditions were “foggy.”

Overall, manufacturing sales and production appear to have improved in December, which bodes well for the sector as we move into 2013. Some of this is likely the result of a pickup in activity after Hurricane Sandy; although, increased exports and imports also suggest improvements in the international economic environment.

Yet, the pace of growth is only slightly above neutral, with many business leaders pulling back on activity in December due to uncertainties surrounding the U.S. fiscal situation and slowing orders globally. With the fiscal cliff situation resolved, at least some of these uncertainties will be resolved for now. Even with this, manufacturing production is expected to grow more modestly in 2013 than in 2012. Moreover, the fiscal cliff agreement did not tackle larger structural issues, leaving larger reforms to the tax code and to entitlements for later, perhaps during the political haggling over the debt ceiling which will take place between now and the spring.

Chad Moutray is the chief economist, National Association of Manufacturers.

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