The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) accelerated to a two-year high in December. The composite index rose from 53.2 in November to 54.7 in December, its highest level since December 2014. It was the second consecutive increase in the headline number, mirroring the jump in business confidence seen in other economic indicators since the election. Indeed, all of the sample comments provided by the ISM echoed the improvement in activity and outlook, with the comments of one plastics of rubber products manufacturer summing up the thoughts of many: “Our business remains strong, and we are seeing continued growth.” Along those lines, respondents also cited a tight labor market and a pickup in inflationary pressures, both of which would also be consistent with stronger demand and output.
Looking more closely at the data, the underlying figures were encouraging in December, including very healthy gains for new orders (up from 53.0 to 60.2) and production (up from 56.0 to 60.3). It was the first time both of these measures have exceeded 60—signifying strong expansions—in 25 months, or since November 2014. Growth in export sales (up from 52.0 to 56.0) and employment (up from 52.3 to 53.1) also improved for the month.
Meanwhile, inventories contracted for the 18th consecutive month (down from 49.0 to 47.0). With reduced stockpiles available, manufacturers will need to increase production to meet additional demand. In addition, input prices rose significantly in December (up from 54.5 to 65.5), with the index exceeding 60 for the first time since June. This suggests that pricing pressures have begun to accelerate somewhat, as noted in the comments.