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U.S. Manufacturing Suffers Worst Monthly Contraction Since Financial Crisis

January 06, 2020, 09:05 AM
Filed Under: Economy

The U.S. manufacturing sector shrank for the fifth consecutive month in December 2019, recording a faster pace of contraction as new orders, production and employment numbers continued to decline, according to survey data from the Institute for Supply Management.

The ISM's seasonally adjusted manufacturing purchasing managers' index, or PMI, dropped to 47.2% in December 2019 from 48.1% in November. December's reading was worse than the 49.1% consensus estimate of economists polled by Econoday. An index reading below 50% indicates a contraction.

The last time the manufacturing PMI registered a lower print was in June 2009 at 46.3%.

The new orders index dipped month over month to 46.8% from 47.2%, while the production index dropped to 43.2% from 49.1%. The employment index decreased to 45.1 from 46.6%.

Only three of the 18 manufacturing industries reported growth in December 2019 after five did in November, the ISM said.

"The grim report was a bit surprising given the fact that the phase-one trade war deal passed in December, financial conditions eased, and regional indices were more upbeat," Morten Lund and Anders Svendsen, analysts at Nordea Markets, wrote in a research report. "In our view, this supports the narrative that something is boiling underneath and that the US economy is showing broader signs of weakness."

U.S. President Donald Trump said on Dec. 31, 2019, that he will sign the first phase of a trade deal with China on Jan. 15 at the White House, but China is yet to confirm the date. The agreement would see China increasing purchases of American agricultural products in exchange for lower tariffs on some of its exports.

Global trade remains the most important issue for industries, but the signing of the "phase one" deal between China and the U.S. should bring improvements to several industry sectors, said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. "Overall, sentiment this month is marginally positive regarding near-term growth," he said.

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