The Institute of Supply Management’s Index moved down 0.9 points on month, (m/m) to 47.2 for December 2019. This value is a discouraging sign for the manufacturing sector. The index has been greater than 50, (>50 = expansion) for thirty-three consecutive months. The new orders sub-index scored a 46.8. Overall, the ISM manufacturing index is strong and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.
The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary.
Figure 1 breaks down the detail of the composite index and sub-indexes. The composite index score for December was 47.2. One year ago, the composite index was a strong at 54.3.
Figure 2 shows the history of the ISM manufacturing index from 2009 to present. On a 3-month moving average, (3MMA) basis, the index posted a value 47.87, down 16.2% 3-months year on year (y/y). When examined on a 12MMA y/y comparison, the index decreased by 13.0% y/y.
Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved down 1.0 points m/m to 46.5 in December. The production sub-index decreased by 5.9 points to 43.2. The employment index moved down by 1.5 of a point to 45.1. The order backlogs which also increased slightly by 0.3 of a point to 43.3.
Of the 18 manufacturing industries, three reported growth in December: Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The 15 industries reporting contraction in December — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Textile Mills; Primary Metals; Chemical Products; Plastics & Rubber Products; and Machinery.
An Institute for Supply Management respondent stated, “Anticipated large export orders did not materialize. As a result, expected U.S. production has decreased.” (Fabricated Metal Products)
At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.