• ISM’s manufacturing index registered 47.4 in December
  • Prices slid at faster rate while employment shrank less

A measure of US factory activity remained stuck in contraction territory for a 14th month at the end of 2023, restrained by weaker orders.

The Institute for Supply Management’s manufacturing gauge edged up 0.7 point to 47.4 last month, helped by a pickup in production, according to data released Wednesday. Readings below 50 indicate contraction, and the figure was near economists’ expectations.

The December result extends the longest stretch of shrinking activity since 2000-2001, when the dot-com bubble burst and sparked a recession.

Manufacturers were beset last year by high borrowing costs and waning demand for goods that prompted some companies to rethink capital spending plans. While the ISM gauge still shows contraction — and almost all industries shrank during the month — it is holding in a range that suggests activity has stabilized at a weak level.

Factory purchasing managers are more upbeat about this year’s prospects as the Federal Reserve has signaled a pivot to lower interest rates.

In the ISM’s latest semiannual economic forecast, 15 of 18 manufacturing industries project that revenue will increase, while capital expenditures are seen rising almost 12%.

“We felt that we’re going to have a good year in 2024,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said on a call with reporters on Wednesday. “We’ve closed the year on a very good note.”

A separate Labor Department report Wednesday showed US job openings eased in November, fewer workers voluntarily quit their positions and the number of hires fell, adding to evidence of cooling labor demand.

Cheaper commodities are benefiting many of the nation’s producers. Wednesday’s ISM data showed a measure of prices paid for materials declined in December from a month earlier by the most in seven months. The prices paid index decreased by 4.7 points to 45.2, helped by a drop in oil prices to an almost six-month low in December.

The ISM’s factory employment index contracted in December but at the slowest pace in three months. Production expanded, even as new orders contracted for a 16th straight month.

What Bloomberg Economics Says…

“The ISM Manufacturing index improved slightly in December, but ongoing softness in demand limits the need to ramp up production or hiring. Continued contraction in the order backlog points to spare capacity and subdued inflationary pressures.”

 Eliza Winger, economist

For the full note, click here.

Anecdotal comments showed some surveyed companies were optimistic over rising demand and the potential for capital investment to pick up in 2024, while others reported slowing business and higher costs for financing.

Select ISM Industry Comments

“Anticipation of the US 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.” — Computer & Electronic Products

“Overall, order intake has picked up over the last quarter and a backlog of projects is beginning to accumulate.” — Chemical Products

“Demand is up across the board. We are starting to see back orders grow again.” — Transportation Equipment

“Commodity costs are decreasing. Supply is readily available, and customers are still ordering to last year’s volumes.” — Food, Beverage & Tobacco Products

“Business is slowing. Finished goods inventories are growing.” — Machinery

“We are forecasting a somewhat strong year for 2024. We’re currently mildly optimistic for how next year will play out.” — Fabicated Metals

“We are impacted with reduced new orders, diminished backlog of orders and uncertain short-term demand for products and services.” — Wood Products

Written by:  — With assistance from Chris Middleton @Bloomberg

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