Manufacturing Contracts in December for Second Straight Month

An employee stands near an American flag
An employee stands near an American flag at the Lodge Manufacturing Co. factory in South Pittsburg, Tenn. (Luke Sharrett/Bloomberg News)

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U.S. manufacturing activity contracted for a second month in December, capping the steepest annual slide in the key factory gauge since 2008 and helping to further tame price pressures.

The Institute for Supply Management’s gauge of factory activity fell to 48.4 last month, the lowest level since May 2020 and down from 49 in November, according to data released Jan. 4. Readings below 50 indicate contraction. The figure was in line with the median estimate in a Bloomberg survey of economists.

The ISM index dropped 10.4 points in 2022, the biggest annual retreat since the Great Recession. The purchasing managers group’s measure of prices paid for materials fell for a ninth-straight month, the longest stretch of declines since 1974-1975.

In December, the new orders and production gauges shrank, with each sliding to the weakest levels since May 2020 and signaling a further softening in demand. Measures of exports and imports also contracted.

Thirteen manufacturing industries reported contraction last month, led by wood products, fabricated metals, chemicals and paper. Only the primary metals and petroleum industries expanded.

Chart of manufacturing activity

Taken together, the data highlights how the shift in consumer spending preferences toward services and away from goods paired with rising interest rates and waning global economic activity are weighing on factories.

Shrinking demand paired with easing supply chain constraints pushed the supplier deliveries gauge to 45.1, the lowest level since March 2009. A reading below 50 indicates faster delivery times.

One silver lining of the Jan. 4 report was the continued easing in input costs. The group’s gauge of prices paid for materials fell to 39.4, the lowest since April 2020.

Manufacturing headcount also expanded in December, with ISM’s employment gauge rising to a four-month high. The government’s December jobs report will be released Jan. 6 and is expected to show payrolls across the economy climbed 200,000.

With assistance from Kristy Scheuble.

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