The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) remained negative for the second straight month. The composite index fell from 48.6 in November to 48.2 in December, its lowest level since June 2009. As such, manufacturers reported soft demand and production activity at the end of 2015, which represented a sharp contrast to the modest growth seen 12 months prior to that. Indeed, the ISM Manufacturing PMI was 55.1 one year ago, and it peaked last year at 58.1 in August 2014. The sector has struggled with sluggish growth abroad and lower commodity prices over much of the past year, dampening overall manufacturing activity. Along those lines, new orders (up from 48.9 to 49.2) and production (up from 49.2 to 49.8) continued to indicate weaknesses in the sector, even as each recorded some easing in the pace of decline in December. To be fair, however, the sample comments also noted some segments that were doing well at year’s end, particularly those aligned with the automotive sector.
Employment (down from 51.3 to 48.1) declined in December for the second time in the past three months. That suggests that the reduced sales and output have led to reduced hiring in the sector. Other subcomponents of the release provided mixed news. On the positive side, exports (up from 47.5 to 51.0) expanded in December for the first time since April. Given a multitude of global headwinds, that is mildly encouraging. Still, imports (down from 49.0 to 45.5) contracted further, falling for the third consecutive month and at its lowest level since May 2009. That suggests that international trade activity remains dampened overall.
Meanwhile, lower energy prices have hurt the energy sector and its supporting supply chain, as noted in a few of the sample comments. Yet, reduced commodity prices have also helped to push down raw material prices. The index for prices (down from 35.5 to 33.5) declined once again, and it has remained below 50 for 14 straight months. At the same time, inventories (up from 43.0 to 43.5) decreased for the fifth consecutive month. This mostly reflects the easing in overall activity. Still, it could also mean that an uptick in demand will necessitate sharp increases in production to meet additional demand, if and when that occurs.