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ISM Manufacturing Index jumped 3.2pts in Dec 2020

Purchasing managers' index (PMI), is a monthly indicator of US economic activity

ISM Manufacturing Index jumped 3.2 points in Dec 2020

The ISM Manufacturing Index jumped 3.2 points on the month to a new recovery high of
60.7 in December, reaching the highest level since August 2018, according to the Oxford Economics report.

The ISM manufacturing index, also known as the purchasing managers’ index (PMI), is a monthly indicator of US economic activity based on a survey of purchasing managers at more than 300 manufacturing firms. It is considered to be a key indicator of the state of the US. Economy.

Production expanded at the strongest pace in nearly nine years, and new orders suggest that future activity will stay solid. Inventories rose for a third month while ongoing supply chain issues caused supplier deliveries to slow.

Employment rose after a dip in November, but respondents noted that absenteeism and hiring challenges are restraining manufacturing activity. Looking ahead, manufacturing activity will continue expanding in 2021, but the underlying growth drivers won’t be as strong as in H2 2020. The latest data shows consumers are becoming more reticent to spend on durable goods, which provided a significant lift to manufacturing last year. The recently passed aid package will support outlays, but the forthcoming boost will be smaller than the lift provided by the first round of pandemic relief. The more muted pace of economic recovery will drag on activity.

Manufacturing fared well overall in 2020 and activity will stay well-supported in 2021, but the recovery’s evolving dynamics will cause the activity to grow more slowly. Factories will face headwinds from the slower economic recovery, ongoing supply chain issues, and the virus’ latest surge. Congress’s latest relief package will provide a smaller boost to activity than the initial Covid-19 response.

“We can be confident that vaccines will bring the pandemic to an eventual end, but near-term recovery risks will remain tilted to the downside,” said Oren Klachkin, Lead US Economist, Oxford Economics.

ISM Manufacturing Index jumped 3.2pts in Dec 2020
ISM Manufacturing Index jumped 3.2pts in Dec 2020

Production index:

The production index rose 4 points to 64.8 in December, the sixth consecutive month above the very healthy 60-level, with thirteen of eighteen industries reporting growth. Apparel, leather products, and printing and related support activities reported the strongest growth. Nonmetallic mineral products and miscellaneous manufacturing were the only categories to report a decline in production.

New orders index:

The new orders index climbed 2.8 points to 67.9, matching October’s multi-year high and signalling that activity will grow at a solid pace. Thirteen of the eighteen industries reported growth, with apparel, wood products, furniture, and related products leading the gains. Only nonmetallic mineral products, textile mills, and miscellaneous manufacturing reported a drop in new orders. Backlogs also suggest there is further room for manufacturing to run.

Employment index : 

According to ISM, the employment index rose back into expansion territory, rising 3.1 points to 51.5, and “significantly more companies” are trying to hire than reduce payrolls. Solid production and new orders signal that employment should stay on a positive track, particularly if virus-related constraints and hiring challenges can be overcome.

Supplier deliveries index :

The supplier delivery index rose 5.9 points to 67.6, the highest reading since May. In addition to labour issues, persistent transportation and logistical challenges are restraining production.

Inventories index :

The inventories index inched 0.4 points higher on the month to 51.6, marking a continued rise in stockpiles. Though supply chain issues are constraining activity, manufacturers can gradually build up their inventories.

Other indexes :

Price pressures rose further as raw materials prices rose for a seventh straight month. Meanwhile, exports and imports both expanded at a slightly slower pace in December.

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