| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 47.2 | 45.6 to 48.1 | 47.4 | 46.7 |
Highlights
Manufacturing activity was in contraction territory for the 14th straight month in December, but the key index rose from November as production was stable despite sluggish demand, data from the Institute for Supply Management released Wednesday showed, with a senor ISM official predicting a return to growth in March.
The sector index compiled by the ISM, which shows general direction, rose 0.7 percentage point to 47.4 after being unchanged at 46.7 in November, slumping 2.3 points to 46.7 in October and rising 1.4 points to a 10-month high of 49.0 in September. The latest figure was slightly higher than the median economist forecast of 47.2. It remained below 50, which indicates contraction in the sector.
"The U.S. manufacturing sector continued to contract, but at a slightly slower rate in December as compared to November," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Companies are still managing outputs appropriately as order softness continues."
Fiore told reporters that he expects the main index to go above the neutral line of 50 in March, judging from the generally positive outlook among manufacturers and that the year 2023 ended in a trough but"in a very good note." There was a high three-to-one ratio for positive comments on the future from surveyed firms, he explained.
The majority of the comments in the December survey do not reflect the latest signal from Federal Reserve policymakers for lower interest rates in 2024, he said.
Fiore expects a"spike" in the ISM new orders index in the next couple of months. It stayed below 50 for the 16th straight month in December. The inventories index, which has remained below 50 for 10 months, is also likely to start climbing in coming months, he added.
The US economy is expected to continue improving in 2024 on expectations that it will avoid recession and prices and borrowing costs will ease, according to the ISM's twice-annual survey released on Dec. 15. The panel of purchasing and supply executives in the manufacturing expects a 5.6 percent net increase on average in overall revenues for 2024, compared to a 0.9 percent increase reported for 2023 and a 1.7 percent increase projected in the May survey for 2023.
Asked about recent attacks by Houthi rebels on Israeli-linked vessels in the Red Sea, Fiore said shipments may be delayed and ocean freight costs may rise, but that he does not see a major supply problem.
The ISM main index has been on a downtrend since it fell 3.0 points to 53.1 in June 2022 but it seems to have hit a bottom in June 2023 at 46.0, the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
The sector index compiled by the ISM, which shows general direction, rose 0.7 percentage point to 47.4 after being unchanged at 46.7 in November, slumping 2.3 points to 46.7 in October and rising 1.4 points to a 10-month high of 49.0 in September. The latest figure was slightly higher than the median economist forecast of 47.2. It remained below 50, which indicates contraction in the sector.
"The U.S. manufacturing sector continued to contract, but at a slightly slower rate in December as compared to November," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Companies are still managing outputs appropriately as order softness continues."
Fiore told reporters that he expects the main index to go above the neutral line of 50 in March, judging from the generally positive outlook among manufacturers and that the year 2023 ended in a trough but"in a very good note." There was a high three-to-one ratio for positive comments on the future from surveyed firms, he explained.
The majority of the comments in the December survey do not reflect the latest signal from Federal Reserve policymakers for lower interest rates in 2024, he said.
Fiore expects a"spike" in the ISM new orders index in the next couple of months. It stayed below 50 for the 16th straight month in December. The inventories index, which has remained below 50 for 10 months, is also likely to start climbing in coming months, he added.
The US economy is expected to continue improving in 2024 on expectations that it will avoid recession and prices and borrowing costs will ease, according to the ISM's twice-annual survey released on Dec. 15. The panel of purchasing and supply executives in the manufacturing expects a 5.6 percent net increase on average in overall revenues for 2024, compared to a 0.9 percent increase reported for 2023 and a 1.7 percent increase projected in the May survey for 2023.
Asked about recent attacks by Houthi rebels on Israeli-linked vessels in the Red Sea, Fiore said shipments may be delayed and ocean freight costs may rise, but that he does not see a major supply problem.
The ISM main index has been on a downtrend since it fell 3.0 points to 53.1 in June 2022 but it seems to have hit a bottom in June 2023 at 46.0, the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
Market Consensus Before Announcement
The ISM manufacturing index has been in contraction the last 13 months and, at 46.7, came in weaker than expected in November. December's consensus is not much better at 47.2.
Definition
The manufacturing composite index from the Institute for Supply Management is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. The survey queries purchasing managers about the general direction (tracked in volumes) of production, new orders, order backlogs, their own inventories, customer inventories, employment, supplier deliveries, exports, and imports. Data on changes in input prices (prices paid) are also tracked. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The questions are qualitative rather than quantitative; that is, they ask about the general direction rather than the specific level of activity. Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
