December manufacturing output declines to end 2023, reports ISM

Manufacturing output finished 2023 with a mild uptick in December while remaining collectively below its benchmark reading for growth, in 2023, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The report’s benchmark metric, the PMI, came in at 47.4 (a reading of 50 or higher indicates growth), up 0.7% over November’s 46.7, contracting, at a slower rate, for the 14^th consecutive month. The past 14 months of contraction were preceded by a stretch of 28 consecutive months of growth. ISM also said that the overall economy contracted in December, at a slower rate, for the third consecutive month, which was preceded by 30 consecutive months of growth.

The December PMI is 0.3% above the 12-month average of 47.1, with September 2023 marking the high for that period, at 49.0, and June 2023, at 46.4, marking the lowest.

ISM reported that Primary Metals represented the lone sector reporting growth in December. The 16 sectors reporting contraction in December included: Printing & Related Support Activities; Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; Textile Mills; Petroleum & Coal Products; Paper Products; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Miscellaneous Manufacturing; Furniture & Related Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products. ISM added that none of the six largest manufacturing sectors grew in December.

The report’s key metrics were mixed in December, including:

• New Orders, which are considered the engine that drives manufacturing, falling 1.2%, to 47.1, contracting, at a faster rate, for the 16^th consecutive month, with four sectors reporting growth;
• Production increased 1.8%, to 50.3, contracting, at a faster rate, for the 16^th consecutive month, with three sectors reporting growth;
• Employment, at 48.1, was up 2.3%, contracting, at a slower rate, for the third consecutive month, with three sectors reporting growth;
• Supplier Deliveries, at 47.0 (a reading above 50 indicates contraction), grew faster, at a faster rate, for the 15^th consecutive month, with three sectors reporting slower deliveries;
• Backlog of Orders, at 45.3, increased 6.0, contracting, at a slower rate, for the 15^th consecutive month (which was preceded by a 27-month stretch of growth), with five industries reporting growth;
• Inventories, at 44.3, were down 0.5%, contracting, at a faster rate, for the tenth consecutive month, with four sectors reporting higher inventories; and
• Customer Inventories, at 48.1, were down 2.7%, moving “too low” after being “too high” in November, with six sectors reporting customers’ inventories as too high

Comments submitted by the ISM member panelists again highlighted various themes related to the economy and market conditions.

A Computer & Electronic Products panelist said that anticipation of the U.S. Federal Reserve holding off on interest-rate changes will encourage more companies to spend on capital investments again.

“As budgets get approval after the start of the calendar year, this should help drive investment and increase manufacturing activity once again,” he said.

A Miscellaneous Manufacturing respondent said that business conditions are good, adding that sales and production are tracking in accordance with forecasts.

Tim Fiore, Chair of the ISM's Manufacturing Business Survey Committee, observed in the report that the U.S. manufacturing sector continued to contract, but at a slightly slower rate in December as compared to November.

“Companies are still managing outputs appropriately as order softness continues,” he said. “Demand eased, with the (1) New Orders Index contracting at a faster rate, (2) New Export Orders Index essentially flat, and (3) Backlog of Orders Index climbing back above 40 percent but still in fairly strong contraction territory. Output/Consumption (measured by the Production and Employment indexes) contracted but improved, with a combined 4.1-percentage point upward impact on the Manufacturing PMI^® calculation. Panelists’ companies maintained production levels month over month and continued actions to reduce head counts in December, primarily through layoffs.

And he observed that inputs—defined as supplier deliveries, inventories, prices and imports—continued to accommodate future demand growth

“Demand remains soft, and production execution is stable compared to November, as panelists’ companies continue to manage outputs, material inputs and labor costs,” said Fiore. “Suppliers continue to have capacity. Eighty-four percent of manufacturing gross domestic product (GDP) contracted in December, up from 65 percent in November. More importantly, the share of sector GDP registering a composite PMI^® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 48 percent in December, compared to 54 percent in November and 35 percent in October. Among the top six industries by contribution to manufacturing GDP, three (Machinery; Petroleum & Coal Products; and Computer & Electronic Products) had a PMI at or below 45 percent, the same number as the previous month.”