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US Manufacturing Drops with Overall Slow Business Growth

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Aug. 18 2020, Updated 9:25 a.m. ET

ISM manufacturing fell by 0.4 points to 48.2 in December

The manufacturing sector accounts for one-tenth of the US economy. According to the Institute for Supply Management, or ISM, the manufacturing PMI (purchasing managers’ index) came in at 48.2 in December—a decline of 0.4 points from the November reading of 48.6.

With the decline in manufacturing, the Industrial Select Sector SPDR Fund (XLI) and the SPDR Dow Jones Industrial Average ETF (DIA) have fallen 3.9% and 3.4%, respectively, over the past month, as of January 4.

Industrial stocks such as Emerson Electric (EMR), Expeditors International of Washington (EXPD), 3M Company (MMM), and Rockwell Automation (ROK) have fallen 3.3%, 7.0%, 7.5%, and 5.6%, respectively, over the same period.

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Manufacturing growth was slow in December

Out of the 18 industries in the ISM manufacturing PMI, 12 reported contraction in December. Moreover, only six reported growth. Although new orders, production, and raw materials inventories increased in December, they are still below the neutral level of 50, indicating contraction and overall slow growth. The new orders received, manufacturing output, and raw materials inventories inched up to 49.2, 43.5, and 49.8, respectively, in December.

With the decline in commodity and energy prices, the prices paid by manufacturers for supplies fell further by 2.0 points to 33.5 in December. In December, the inventories of manufacturers and customers rose by 0.5 and 1.0 points to 43.5 and 51.5, respectively.

Following six months of contraction, exports expanded to 51.0 in December, while imports declined by 3.5 points to 45.5 in December.

Markit US PMI fell by 1.6 points to 51.2 in December

The Markit PMI came in at 51.2 in December—a decrease of 1.6 points as compared to 52.8 in November 2015. This change highlights weakness in export orders and slower rates of output and new business growth.

The ISM and Markit PMIs indicate that US manufacturing activity is declining. With industrial activity not picking up, the US economy may look to the service sector for growth.

We’ll see how the Eurozone’s inflation is shaping up in the next part of this series.

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