Manufacturing output finished 2024 with another month of contraction, 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 reading, the PMI, at 49.3 (a reading of 50 or higher indicates growth), rose 0.9% over November’s 49.3, with the PMI contracting for the ninth consecutive month and the 25th time in the last 26 months. It also noted that the overall economy has expanded, at a faster rate, for the last 56 months, since contracting in April 2020.
The December PMI is 1% above the 12-month average of 48.3, with March’s 50.3 and October’s 46.5 readings marking the lowest and highest readings, respectively, over that period.
ISM reported that that seven manufacturing sectors grew in December, including: Primary Metals; Electrical Equipment, Appliances & Components; Wood Products; Furniture & Related Products; Paper Products; Miscellaneous Manufacturing; and Plastics & Rubber Products. Sectors seeing contraction included: Textile Mills; Fabricated Metal Products; Printing & Related Support Activities; Machinery; Chemical Products; Transportation Equipment; and Nonmetallic Mineral Products.
The report’s key metrics were mixed in December including:
- New Orders, which are considered the engine that drives manufacturing, increased 2.1%, to 52.5, growing, at a faster rate, for the second consecutive month, after seven months of contraction, with the category not seeing consistent growth since a 24-month stretch of expansion concluded in May 2022 (ISM said six sectors saw New Orders growth in December);
- Production, at 50.3, increased 3.5%, growing after contracting for the previous six months, with one sector reporting growth;
- Employment, at 45.3, fell 2.8%, contracting, at a faster rate, for the seventh consecutive month and the 14th time in the last 15 months, after rising in May, with five sectors growing;
- Supplier Deliveries, at 50.1 (a reading above 50 indicates contraction), slowed in December, following a contraction in November, which was preceded by four months of slower deliveries, with six sectors reporting slower deliveries in December;
- Backlog of Orders, at 45.9, increased 4.1%, contracting, at a slower rate, for the 27th consecutive month, after 27 months of growth, with three sectors reporting expanded order backlogs;
- Prices, at 52.5, rose 2.2%, increasing, at a faster rate, for the third consecutive month, with seven sectors reporting they paid higher prices;
- Inventories, at 48.4, increased 0.3%, contracting, at a slower rate, for the fourth consecutive month, with five sectors reporting higher inventories; and
- Customers’ Inventories, at 46.7, down 1.7%, heading “too low,” at a faster rate, for the third consecutive month, with four sectors reporting Customers’ Inventories as “too high”
ISM panel respondents’ comments in the report were again mixed.
A Primary Metals respondent said that there was an uptick in December but not a stable one, and a Chemical Products respondent noted that December activity was slightly lower due to seasonality and end-of-year destocking.
In an interview, Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, expressed optimism, in that 2025 is likely to be a better year for manufacturing than 2024, with December’s data presenting some encouraging signs.
“I think December was a really good demand month, relative to the rest of 2024,” said Fiore. “New Orders are up and New Export Orders [up 1.3% to 50.0] stable, Customers’ Inventories too low, and Backlog of Orders contracting at a much slower rate,” he said. I think demand is starting to come, and this is a good report because our revenue production number stayed stable to November. We did not want to see it decline so that is good news, even though [companies] are continuing to de-staff, which I am a little disappointed in. But that is human nature, with things being put off at the last minute, and that is what we saw in December. We’re still de-staffing, but I would be surprised to see that happen in January.”
On the input side, Fiore explained that he is still waiting for the Supplier Deliveries number to firm up, which he said would represent the final indicator of a growth cycle, when that number is in the 54-to-56 range, which he said is likely to occur in February.
A major focus area for manufacturing in 2025 is tariffs, said Fiore. That was evidenced by 35% of the report’s headline comments mentioning tariffs, up from 20% in November and 10% in October, with global issues in low single digits.
“Tariffs are the biggest concern,” he said. “Tariffs are a tactical issue, and will become macro if there’s large scale, long-term, across-the-board, tariffs on all our imports. That becomes macro. In the meantime, it’s tactical, and tactical means come up with different solutions. It means decide how much you’re going to pass on to your customers, how much you’re not going to. Come up with dual sources, engage your second source, even though might not be a cost advantage. This is all going to play out in 2025 and we’ll deal with it as it comes. But I think outside of the tariff issue, it’s an aggressive administration coming in, and we’re starting the year off right, I think.”
Fiore said 2024 ended with prospects for manufacturing being pretty optimistic, noting that its 2024 forecast made at the end of 2023 was strong on the basis that there was going to be rate cuts in the first quarter 2024, which did not happen, with things becoming less optimistic as the year went on until the first rate cut in September. Which Fiore said indicated that inflation did not meaningfully come down.
For employment, he said that the numbers are following what he called a weird cycle, with manufacturing laying off 1.1% of its staff, while the overall unemployment rate is at 4.2%.
“[Manufacturing] is not a big employer, but we do affect the service side too,” he said. “I think that’s kind of it. I think we’re starting at a higher price level. I think we’re starting at a point here where I would have preferred to be coming out of a hard landing than a soft landing.”
