US manufacturing sector eyes recovery in December – ISM

WASHINGTON (Reuters) – U.S. manufacturing contracted further in December, though the pace of decline slowed amid a modest rebound in production and improvement in factory employment.

The Institute for Supply Management (ISM) said on Wednesday that its manufacturing PMI increased to 47.4 last month after being unchanged at 46.7 for two straight months. It was the 14th consecutive month that the PMI stayed below 50, which indicates contraction in manufacturing. That is the longest such stretch since the period from August 2000 to January 2002.

Economists polled by Reuters had forecast the index rising to 47.1. According to the ISM, a PMI reading below 48.7 over a period of time generally indicates a contraction of the overall economy. The ISM and other factory surveys, however, likely overstate the weakness in manufacturing.

The so-called hard data suggest that manufacturing, which accounts for 10.3% of the economy, is plodding along. Orders for long-lasting manufactured goods were up strongly on a year-on-year basis in November. Though factory production has been weak, the magnitude of the drop has gotten smaller in recent months.

The economy continues to expand, growing at a 4.9% annualized rate in the third quarter. Growth estimates for the October-December quarter are currently as high as a 2.0% pace.

The ISM survey’s forward-looking new orders sub-index fell to 47.1 last month from 48.3 in November.

Production at factories rebounded, with the sub-index coming in at 50.3 from 48.5 in November. Production could improve further as a measure of customers’ inventories fell back below the 50 level after rising in November to what the ISM said was the upper end of “just right.”

Several manufacturers in November cited the need to reduce inventory levels.

Subdued demand helped to further depress prices at the factory gate, a sign that goods deflation could prevail for sometime. The survey’s measure of prices paid by manufacturers dropped to 45.2 from a seven-month high of 49.9 in November.

The survey’s measure of supplier deliveries edged up to 47.0 from 46.2 in the prior month. A reading below 50 indicates faster deliveries.

Factory employment picked up, though it remained weak amid attrition, hiring freezes and layoffs. The survey’s gauge of factory employment rose to 48.1 from 45.8 in November. This measure has not been a reliable predictor of manufacturing payrolls in the government’s closely watched employment report.

According to a preliminary Reuters survey of economists, manufacturing payrolls likely increased by 5,000 jobs in December as the boost from the return of striking United Auto Workers union members faded. Factory employment rose 28,000 in November.

Overall nonfarm payrolls are expected to have increased by 168,000 jobs last month after surging 199,000 in November, according to the Reuters survey. The unemployment rate is forecast rising to 3.8% from 3.7% in the prior month.

The government is scheduled to publish its closely watched employment report for December on Friday.

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