Conditions in the manufacturing sector registered their best improvement in over three years in December, with the PMI rising to 50.7 from 47.8 in November, reversing three months of contraction. Today's result is a slight improvement over the preliminary reading of 50.6.

Export orders were the main driver of the improvement, and while a clearly welcome development, nevertheless masks ongoing weakness in domestic demand. Taken together, the overall volume of new business declined at the slowest pace since May of last year.

Employment also contributed to the improved result, as more factory jobs were created than lost for seven out of the past eight months.

There are some prices pressures evident with input costs having risen for the 14th consecutive month. Prices charged rose in December for the first time since August, with firms reporting passing on the higher costs to their customers. While inflation remains low, it bears watching to see if increased prices begin to bleed into producer and consumer prices.

Overall, manufacturers are cautiously optimistic and expect output to increase over the next 12 months.

Manufacturing ended the year on a positive note, and sets the table for improved result for 2026. An improvement in the political situation, particularly around government spending, would be another positive development for the private sector.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 400 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are released by S&P Global.

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 S&P Global PMIs 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 S&P Global 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.