U.S. manufacturing failed to grow in December

Jan. 31, 2008

Economic activity in the manufacturing sector failed to grow in December following 10 consecutive months of expansion, while the overall economy grew for the 74th consecutive month, says the latest Manufacturing ISM Report on Business from the Institute for Supply Management Manufacturing Business Survey Committee (www.ism.ws).

The report was issued by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The manufacturing sector failed to grow in December ending 10 consecutive months of growth. 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 seven industries reporting growth in December — listed in order — are: apparel, leather and allied products; petroleum & coal products; food, beverage & tobacco products; computer & electronic products; machinery; primary metals; and miscellaneous manufacturing.

Purchasing Managers’ Index (PMI)

Manufacturing failed to grow in December as the PMI registered 47.7 percent, a decrease of 3.1 percentage points 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."