Manufacturing down 3.1 percent in December

Jan. 3, 2008

"The manufacturing sector failed to grow in December ending 10 consecutive months of growth,” Norbert J. Ore, C.P.M., chair of the Institute for Supply Management (ISM) ( Manufacturing Business Survey Committee said in the January ISM report. “The recent trend has been toward slower growth. However, December was apparently a very tough month as New Orders, Production and Employment were all below the break-even mark of 50 percent. Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better. Slower demand appears to be more of a problem than excessive inventories based on the respondents' comments."

The ISM’s Purchasing Managers Index (PMI) registered 47.7 percent, a decrease of 3.1 percent when compared to November’s reading of 50.8 percent. This is the first month that the manufacturing sector has failed to grow since January 2007. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that the overall economy is growing while the manufacturing sector is contracting. "The past relationship between the PMI and the overall economy indicates that the PMI average for January through December (52.2 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for December (47.7 percent) is annualized, it corresponds to a 1.8 percent increase in real GDP annually," the report said.

ISM's New Orders Index registered 45.7 percent in December. The index is 6.9 percentage points lower than the 52.6 percent reported in November. A New Orders Index above 49.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

ISM's Production Index fell to 47.3 percent in December, a decrease of 4.6 percentage points when compared to November's reading of 51.9 percent. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Manufacturers' inventories contracted again in December as the Inventories Index registered 45.5 percent, which is 1.4 percentage points lower than November's reading of 46.9 percent. This is the 17th consecutive month of inventory liquidation. An Inventories Index greater than 42.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The Manufacturing ISM Report On Business is published monthly by the Institute for Supply Management. The full text version of the report is posted on their website at