Orders and production grow in December, but employment falls as manufacturers adjust staffing
US manufacturing showed tentative signs of recovery in December, with production and new orders improving, according to data from the Institute for Supply Management (ISM).
The ISM manufacturing index rose to 49.3, its highest level since March, though it remained below 50, signalling contraction.
As per BNN Bloomberg, this marked the second consecutive month of improvement in the gauge, which exceeded most economist estimates from a Bloomberg survey.
The ISM new orders index climbed to 52.5, reaching its strongest level since early 2022, while production expanded for the first time since May.
Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, summarized the trends, stating that “demand improved, production execution met November’s performance (and companies’ plans), de-staffing continued (but should end soon), and price growth was marginal.”
Despite these gains, the ISM employment index fell sharply to 45.3, indicating accelerated job reductions in the US manufacturing sector.
Fiore highlighted that staffing levels might stabilise soon, even as the broader sector struggles with challenges such as elevated costs and uncertainty surrounding tariffs.
Industry performance was uneven in December, with seven sectors reporting growth and seven others contracting.
Primary metals, electrical equipment, and appliances experienced expansion, according to BNN Bloomberg, while textiles, fabricated metals, and machinery saw declines.
Respondents to the ISM survey provided varied insights on sector performance.
Machinery manufacturers described a “significant slowdown in production requirements in the last two months of the year,” while fabricated metal producers noted that “order levels [were] well below forecast projections.”
Meanwhile, manufacturers of electrical equipment highlighted that “the increase in new orders has our plant at full capacity.”
Reuters reported that some manufacturers, particularly in food, beverage, and tobacco, expressed concern about a “softening in sales,” despite the season typically being a peak period.
At the same time, producers of miscellaneous goods pointed to “seasonal factors” and an “increased demand outlook for 2025” as reasons for optimism.
The ISM prices paid index rose to 52.5 in December, indicating rising input costs. Fiore attributed the increase in part to manufacturers advancing material deliveries and stockpiling inventory to mitigate potential tariff impacts.
Reuters noted that President-elect Donald Trump’s proposed tariffs on imports from Mexico, Canada, and China have raised concerns about higher raw material costs.
The survey also revealed a rise in the ISM imports index to 49.7, which Fiore linked to businesses preparing for future trade uncertainties.
Reuters added that while manufacturers were building inventories, customer stockpiles continued to shrink at the fastest pace since July, potentially supporting future orders.
While December’s ISM data signalled a less pessimistic outlook, the sector faces headwinds.
Reuters reported that the ISM manufacturing index remained below 50 for the ninth consecutive month, reflecting persistent challenges in the sector.
Economists expect ongoing Federal Reserve monetary policy adjustments, including December’s interest rate reduction to 4.25-4.50 percent, to influence manufacturing performance.
Fiore highlighted signs of stabilisation, but Reuters noted that manufacturers remain cautious about the potential impacts of trade policies and elevated costs.
Despite production rebounding and new orders rising, uncertainties over tariffs and global demand suggest a challenging road ahead for the US manufacturing sector.
