Business of Engineering

PMI plunges in December over manufacturing slowdown concerns

Index drops almost 10% to 2-year low as production, new orders slump.
By Bob Vavra January 3, 2019
The PMI Index dropped 5.2 percentage points in December to a 2-year low. Courtesy: CFE Media.

The monthly purchasing manufacturers’ index (PMI) plummeted almost 10% in December as manufacturing leaders expressed concern over global growth and global tariffs. The PMI, released Jan. 3 by the Institute for Supply Management (ISM), fell to 54.1% in December, a drop of 5.2 percentage points from its 59.3% reading in November. The index fell to its lowest level since a 53.4% reading in November 2016, and the only time the index had been below 57% in 2018.

Matching the general economic malaise that saw the stock market struggle throughout December, the broader categories that make up the PMI also fell sharply in December. The new orders index fell 11 percentage points to 51.1%, the Production Index dropped 6.3 percentage points to 54.3% and the employment index dropped 2.2 percentage points to 58.4%.

Manufacturing outlook and concerns

Overall, the sharp drop reflected a still-growing, but slowing, global manufacturing economy. “Comments from the panel reflect continued expanding business strength, but at much lower levels,” said Timothy R. Fiore, chairman of the Institute for Supply Management’s Manufacturing Business Survey Committee.

“Demand softened, with the new orders index retreating to recent low levels, the customers’ inventories index remaining too low — a positive heading into the first quarter of 2019 — and the backlog of orders declining to a zero-expansion level. Consumption continued to strengthen, with production and employment still expanding, but at much lower levels compared to prior periods. Exports continue to expand, but at low levels consistent with November,” Fiore added. “Price increases relaxed to levels not seen since June 2017, when the index registered 53 percent. The manufacturing community continues to expand, but at much lower levels and at a sharp decline from November.”

Only 11 of the 18 industries measured in the PMI showed growth in December, which is down from 16 industries in November. Committee members continued to express concerns that trade disputes were weighing heavily on growth projections in the near term.

Committee comments

  • “Growth appears to have stopped. Resources still focused on re-sourcing for U.S. tariff mitigation out of China.” (Computer & electronic products)
  • “Brexit has become a problem due to labeling changes.” (Chemical products)
  • “Customer demand continues to decrease (due to) concerns about the economy and tariffs.” (Transportation equipment)
  • “Starting to see more and more inflationary increases for raw materials. Also, suppliers (are) forcing price increases due to tariffs.” (Food, beverage, & tobacco Products)
  • “The ongoing open issues with tariffs between U.S. and China are causing longer-term concerns about costs and sourcing strategies for our manufacturing operations. We were anticipating more clarity (regarding) tariffs at the end of 2018.” (Machinery)
  • “Business is steady, but pace of incoming orders is slowing.” (Furniture & related products)
  • “Caution seems to be the outlook. Are we in a correction, or is the market getting ready to slow over time?” (Fabricated metal products)
  • “No major change in business operations towards the end of 2018; however, we are carefully monitoring oil prices and outside influence from market conditions to better understand our 2019 outlook and capital plans.” (Petroleum & coal products)
  • “Customers are hedge buying in December as a result of announced price increases starting in January.” (Textile mills)

The basic manufacturing fundamentals remain solidly in a growth mode; the 54.3% PMI Index in December still is almost 10% above the growth threshold of 50%. December also marked the 28thstraight month of overall manufacturing growth.

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Bob Vavra
Author Bio: Bob is the Content Manager for Plant Engineering.