The S&P PMI manufacturing index posted 49.4, up from the mid-month flash estimate of 48.3 but still below the 50-growth threshold. This signals that the manufacturing economy is contracting, even as the latter half of December outperformed the earlier half. At 49.4 the PMI manufacturing index is higher than the consensus estimate (48.3) but lower than November's final (49.7).

This contraction can be attributed to a drop in new orders which in turn led to a decline in manufacturing production for the fifth month in a row. New business decreased after nearly stabilizing in November, with Europe and Australia being among the export nations with a noted decline in demand.

After rising in November business sentiment fell to the lowest level since August. Still, the positive sentiments from anticipation of the incoming administration helped boost staffing levels for the second month in a row, albeit slightly less than in November.

The drop in new orders led to a reduction in the purchase stock of inputs as well as finished goods. This means input buying and stocks of purchase dipped in December.

The rate of input cost inflation accelerated at the fastest rate since August. Due to increased costs of raw materials, firms raised their output prices as inflation quickened to a 3-month high.

The consensus looks for no revision in the PMI manufacturing final report from 48.3 in the flash.

Based on monthly questionnaire surveys of selected companies, the Purchasing Managers' Manufacturing Index (PMI) offers an advance indication on month-to-month activity in the private sector economy by tracking changes in variables such as production, new orders, stock levels, employment and prices across manufacturing industries. The final index for the current month is released roughly a week after the flash.

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 in the U.S. and the Markit PMIs in the U.S. and elsewhere, 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 Markit PMI 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. And its sub-indexes provide a picture of orders, output, employment and prices.

Markit originally began collecting monthly Purchasing Managers' Index (PMI) data in the U.S. in April 2004, initially from a panel of manufacturers in the U.S. electronics goods producing sector. In May 2007, Markit's U.S. PMI research was extended out to cover producers of metal goods. In October 2009, Markit's U.S. Manufacturing PMI survey panel was extended further to cover all areas of U.S. manufacturing activity. Back data for Markit's U.S. Manufacturing PMI between May 2007 and September 2009 are an aggregation of data collected from producers of electronic goods and metal goods producers, while data from October 2009 are based on data collected from a panel representing the entire U.S. manufacturing economy. Markit's total U.S. Manufacturing PMI survey panel comprises over 600 companies.