New Orders Help Manufacturing Sector Bounce Back In December (Update)

Manufacturing proved more resilient than many thought in December, rebounding on the back of increased new orders and higher production.

Manufacturing proved more resilient than many thought in December, rebounding on the back of increased new orders and higher production.

The Institute for Supply Management said Wednesday its monthly PMI index rose to 51.4 from 49.5 in November. A reading above 50 suggests the manufacturing economy is generally growing, while a sub-50 reading indicates it is declining. Economists were looking for a reading of 50 for the widely followed index.

“I was pleased because it showed some inherent strength in manufacturing, and that probably will keep us from going into a no-growth scenario - we’ll continue with low growth,” said Norbert Ore, chair of the ISM’s Manufacturing Business Survey Committee.

New orders into the manufacturing sector – a key barometer of the health of the industry – rebounded to 52.1 from 48.7, and the production index increased to 51.8 from 48.5.

At the same time, the employment backdrop in manufacturing took a turn for the better, with that index edging up. Prices paid by manufacturers took a steep dive, with the cost of copper, petroleum, polypropylene resins and steel among the contributors.

"Manufacturing activity came to a virtual halt in the last three months of last year," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. "The December ISM report suggests that the pronounced slowing over the last three months is temporary and that manufacturing activity may be beginning to pick up again."

Among the best performing industries in December were (listed in order): Apparel, Leather & Allied Products, Printing & Related Support Activities, Plastics & Rubber Products, Miscellaneous Manufacturing, Petroleum & Coal Products, Computer & Electronic Products, Primary Metals, Chemical Products, and Food, Beverage & Tobacco Products.

As always, there were diverse views among survey respondents as to the state of business:

     - “Strong demand for fourth-quarter shipments.” (Computer & Electronic Products)

     - “Demand is slowing.” (Chemical Products)

     - “Automotive customer demand is picking up after being flat/down the last couple of months.” (Fabricated Metal Products)

     - “We are projecting a 10 percent drop in production through the first half of next year,” (Furniture & Related Products)

"For the year as a whole, manufacturing grew much faster than the general economy in 2006,” Meckstroth said. “The outlook for 2007 is for manufacturing production to approximate the growth rate for the general economy.”

One concern of Ore’s is the reading on order backlogs, which dipped to 45 from 46.5 and is now down three months in a row.

“I wouldn’t want to see that drop for too many more months because manufacturers don’t carry as much inventory today as they once did, and when it falls off too far it can really reduce activity,” he said.

The ISM report was originally scheduled for release Tuesday, but was pushed back by a day as a result of the national day of mourning for former President Gerald Ford.

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