PMI wraps up 2014 with another strong month

While manufacturing index slips to 55.5% in December, the yearly average indicates solid growth will continue.

01/05/2015


The PMI Index showed manufacturing growth slowing from 58.7% in November to 55.5% in December, but it still indicated a growth rate 10% higher than the 50% threshold ISM uses to measure manufacturing growth. Courtesy: Institute for Supply ManagementManufacturing wrapped up 2014 with another strong show of growth in the sector, but at a slightly slower rate than the previous two months.

While the monthly PMI Index, released Jan. 2 by the Institute for Supply Management (ISM), showed manufacturing growth slowing from 58.7% in November to 55.5% in December, it still indicated a growth rate 10% higher than the 50% threshold ISM uses to measure manufacturing growth.

A sharp drop in new orders—down 8.7 percentage points from November's 66.0% level to a still-bullish 57.3%—and a similar fall in the production index, led to the decline. The employment index continued its rise, jumping 1.9 percentage points to 56.8%.

Still, 2014 finished as one of the most consistently strong years for manufacturing. For the year, the PMI Index averaged 55.8% for the month, which is 11.6% above the 50% growth barrier. The PMI has been above 55% since May, hitting a high of 59% in October before settling down over the final two months.

Bradley Holcomb, chairman of the ISM's Manufacturing Business Survey committee, said factors outside the manufacturing sector were believed by the committee to have an impact on the December figure. "Comments from the panel are mixed," said Holcomb, "with some indicating that falling oil prices have an upside while others indicate a downside. Other comments mention the negative impact on imported materials shipment due to the West Coast dock slowdown."

Among the comments from committee members:

  • "Retail sales this holiday season are shaping up to be much improved over last year." (Food, Beverage & Tobacco Products)
  • "West Coast port issues have greatly impacted our incoming materials. We are air freighting many parts from Japan and Asia to support production while parts sit at the dock." (Fabricated Metal Products)
  • "Class 8 trucks and RV business is very strong." (Transportation Equipment)
  • "Most commodities feeling downward price pressure from crude. Rain in California driving demand for repair products through the roof." (Petroleum & Coal Products)
  • "Business has not slowed as of yet, but outlook is that business should start slowing, energy market related." (Computer & Electronic Products)
  • "Collapse of oil prices is supporting negotiations for significantly lower petrochemical related material prices. Sales are slowing down as buyers reduce inventory in anticipation of lower prices." (Chemical Products)
  • "Energy prices falling are a blessing and a curse for us. We will experience downside as projects are canceled by energy companies, but suspect manufacturing in the US will improve driving upside in that space." (Apparel, Leather & Allied Products)

The December PMI reading of 55.5% is 22% above the 43.2% threshold for growth in the overall economy, according to the ISM data. This marked the 67th straight month the PMI was above that level, and correlates to a 4.2% growth in the overall gross domestic product, Holcomb said.



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