Signs of Life in the Manufacturing Sector?
2025.01.06 08:27
The December data came in better than expected on Monday morning, coming in at 49.3, which happens to be a 9-month high. Anything below 50 (orange line) is still in contraction territory, but this is the second straight month the index has increased. We remain above the 42.5 level (grey line), which generally indicates expansion of the overall economy. Seven of the 18 manufacturing industries reported growth in December.
“U.S. manufacturing activity contracted again in December, but at a slower rate compared to November. Demand showed signs of improving, while output stabilized and inputs stayed accommodative.”
“Demand improved, production execution met November’s performance (and companies’ plans), de-staffing continued (but should end soon), and price growth was marginal.”
Looking at some of the most important components within the report, the new orders index (best forward-looking indicator of future demand) increased 2.1 points in December to 52.5, with six industries reporting growth. 
Production increased 3.5 points, pushing the index into growth territory, with a reading of 50.3. With five industries reporting growth.
unfortunately fell 2.8 points, dropping to 45.3, with only two industries reporting growth. This is now the seventh straight month the subcomponent has been in contraction territory and 14 out of the last 15 months. The decline in demand for goods has led to manufacturing companies reducing head counts. But hopefully, if the new orders index continues its upward path, we could see the employment index reverse higher very quickly.
paid increased 2.2 points in December, now 52.5. In this case its a negative because it means companies are paying more for input costs, and that can translate to higher prices for consumers. Seven industries reported paying higher prices for their cost of goods sold.
So overall its still a mixed bag, but some signs of life are evident. The manufacturing sector has been in contraction for all but one month (March 2024) since November 2022, and below the historical average of 52.6 for 28 straight months. Consumers have clearly shifted their spending patterns, responding to by cutting back on purchases, along with the negative effect of higher interest rates on the entire industry. Tuesday we will get the . With services comprising roughly 2/3rd’s of todays economy, its kept the overall economy growing.
