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First Cut: December ISM Manufacturing Index lowest since end of recession

The ISM Manufacturing Index for December fell to 47.2 after 48.1 in November. This was the fifth straight month of contraction for the index and the lowest since 45.8 in June 2009 when the recession was starting to lose its hold. Comments from survey respondents suggest that caution about conditions for manufacturing remains the rule. The recession for the factory sector is not deep, but it is lingering and not showing much evidence that it will end soon. In fact, conditions are looking rather like those of mid-2009 when the recession was just ending.

A primary reason for caution is the softness in new orders. That index fell to 46.8 in December after 47.2 in November, and was the weakest since 46.5 in April 2009. The index for export orders was about the same in December as November at 47.3 after 47.9. Orders from abroad remained slow. The import index was also about the same at 48.8 after 48.3. These reflected the uncertainties related to trade policy. The order backlogs index remained contractionary for an eighth month in a row at 43.3 in December, little changed from 43.0 in November. Lack of new orders and drawndown of existing orders slowed the production index to 43.2 in December from 49.1 in November and was the lowest since 42.7 in May 2009.

The index for delivery times rose slightly to 54.6 in December after 52.0 in November and may be due to narrow inventories at suppliers. The inventory index was up a bit, but still in contraction at 46.5 after 45.5. Inventories have been declining for seven months in a row.

The index for employment was down to 45.1 in December from 46.6 in November and has been below neutral for five months. The index has not been this low since 40.7 in June 2009.

The price index was up to 51.7 in December, the first above-50 reading since 53.2 in May. The factory sector is seeing some pass-through of higher input costs as well as slightly higher energy prices.

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