Manufacturing Activity Slumped to 11-month Low in December

Growth in U.S. manufacturing in December was weaker than expected, slouching to its slowest pace since January of 2020, a survey of manufacturing executives indicated Tuesday.

The Institute for Supply Management said that its index of manufacturing activity fell to a reading of 58.7 in December, below the consensus forecast of 60.5 and 2.4 percentage points lower than the November reading.

The index is assembled from questionnaires sent out to purchasing managers at manufacturing businesses, giving rise to its name as the Purchasing Managers Index, or PMI. It is regarded as a reliable predictor of government reports on the economy, which frequently come out months later.

December’s reading was the worst since January 2021, when the index also read 58.7.

Both new orders and production were lower in December, although the greatest source of the slowdown is supply chain constraints.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with indications of improvements in labor resources and supplier delivery performance. Shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products continue to plague reliable consumption,” said ISM’s Timothy R. Fiore.

Supplier deliveries slowed further in December and customer inventories were still at levels considered too low. The prices paid by manufacturers for materials and components continued to rise, indicating ongoing supplier pricing power, but the pace of growth slowed in December.

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