Manufacturing hit ceiling in December

After 10 consecutive months of expansion, economic activity in the manufacturing sector hit the ceiling in December, according to the latest Manufacturing ISM Report On Business.

By Staff -- Modern Materials Handling, 1/2/2008

After 10 consecutive months of expansion, economic activity in the manufacturing sector hit the ceiling in December, according to the latest Manufacturing ISM Report On Business. The report, issued by Norbert J. Ore C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee, also noted that the overall economy grew for the 74th consecutive month.

“December was apparently a very tough month as new orders, production and employment were all below the break-even mark of 50%,” Ore says. “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."

Seven industries did report growth in December: apparel, leather and allied products; petroleum and coal products; food, beverage and tobacco products; computer and electronic products; machinery; primary metals; and miscellaneous manufacturing.

One respondent’s comments summarized the core problem: "Business is good, but higher raw material prices are squeezing margins," this manager from the primary metals market said.

The Performance of Manufacturing Index (PMI) registered 47.7%, a decrease of 3.1 percentage points when compared to November's 50.8%. This is the first month the manufacturing sector failed to grow since January 2007. A reading above 50% indicates the manufacturing economy is generally expanding; below 50% indicates general contraction.

The PMI average for January through December (52.2%) corresponds to a 3.2% increase in real gross domestic product (GDP) annually. In addition, if the 47.7% PMI for December is annualized, it corresponds to a 1.8% increase in real GDP annually.