PMI decline shows manufacturing in a slump
Manufacturing officially is in a slump.
The Institute for Supply Management’s (ISM) monthly Purchasing Managers’ Index (PMI) stayed below the 50% contraction level in December, sliding 0.4 percentage points to 48.2% It was the second straight month of contraction for the PMI, and the seventh consecutive month of decline for the benchmark manufacturing index. It’s also the lowest reading for the PMI since a 45.9% reading in June 2009.
The fall in December was not unexpected. There were reports of a continuing decline in the Chinese manufacturing market, which led to a Jan. 4 selloff in stock markets in China and the United States. The Dow Jones Industrial Average fell 350 points at the open of the first trading session of 2016. Perhaps more troubling to the manufacturing sector is some issues cited by ISM’s Business Survey Committee show no sign of going away soon.
"As was the case in November, 10 out of 18 manufacturing industries reported contraction in December," said Bradley Holcomb, chairman of the ISM Business Supply Committee. "Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December."
A weakening in oil prices has different impacts on different sectors. A committee member in the petroleum and coal products industry said, "Low oil prices are negatively impacting oil and gas exploration activities. Low oil prices are generally positive for the petrochemical industry."
However, a committee member in the rubber and plastics industry noted, "Business is going well. Low fuel prices keep full size SUV and truck sales at high volumes." Some committee members noted there were annual slowdowns expected in December, due to employment furloughs and tighter year-end budgets. But a committee member in the computer and electronics sector, a market usually bolstered by the Christmas season, noted, "December revenue is flat compared to last month."
Since hitting 53.5% in June 2015, the PMI has been on a long, slow decline, finally falling below the 50% threshold for manufacturing expansion in November for the first time in three years.