PMI® at 54.1%; December Manufacturing ISM® Report On Business®

New Orders, Production, and Employment Growing

Supplier Deliveries Slowing at Slower Rate; Backlog Unchanged

Raw Materials Inventories Growing; Customers' Inventories Too Low

Prices Increasing at Slower Rate; Exports and Imports Growing

TEMPE, Ariz., Jan. 3, 2019 /PRNewswire/ -- Economic activity in the manufacturing sector expanded in December, and the overall economy grew for the 116th consecutive month, say the nation's supply executives in the latest Manufacturing ISM^® Report On Business^®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee: "The December PMI^® registered 54.1 percent, a decrease of 5.2 percentage points from the November reading of 59.3 percent. The New Orders Index registered 51.1 percent, a decrease of 11 percentage points from the November reading of 62.1 percent. The Production Index registered 54.3 percent, 6.3-percentage point decrease compared to the November reading of 60.6 percent. The Employment Index registered 56.2 percent, a decrease of 2.2 percentage points from the November reading of 58.4 percent. The Supplier Deliveries Index registered 57.5 percent, a 5-percentage point decrease from the November reading of 62.5 percent. The Inventories Index registered 51.2 percent, a decrease of 1.7 percentage points from the November reading of 52.9 percent. The Prices Index registered 54.9 percent, a 5.8-percentage point decrease from the November reading of 60.7 percent, indicating higher raw materials prices for the 34th consecutive month.

"Comments from the panel reflect continued expanding business strength, but at much lower levels. Demand softened, with the New Orders Index retreating to recent low levels, the Customers' Inventories Index remaining too low — a positive heading into the first quarter of 2019 — and the Backlog of Orders declining to a zero-expansion level. Consumption continued to strengthen, with production and employment still expanding, but at much lower levels compared to prior periods. Inputs — expressed as supplier deliveries, inventories and imports — softened as well, with suppliers improving delivery performance, and inventories and imports declining.

Exports continue to expand, but at low levels consistent with November. Price increases relaxed to levels not seen since June 2017, when the index registered 53 percent. The manufacturing community continues to expand, but at much lower levels and at a sharp decline from November," says Fiore.

Of the 18 manufacturing industries, 11 reported growth in December, in the following order: Textile Mills; Apparel, Leather & Allied Products; Machinery; Transportation Equipment; Computer & Electronic Products; Wood Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; and Primary Metals. The six industries reporting contraction in December — in the following order — are: Printing & Related Support Activities; Fabricated Metal Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Paper Products; and Plastics & Rubber Products.

WHAT RESPONDENTS ARE SAYING

• "Growth appears to have stopped. Resources still focused on re-sourcing for U.S. tariff mitigation out of China." (Computer & Electronic Products)
• "Brexit has become a problem due to labeling changes." (Chemical Products)
• "Customer demand continues to decrease [due to] concerns about the economy and tariffs." (Transportation Equipment)
• "Starting to see more and more inflationary increases for raw materials. Also, suppliers [are] forcing price increases due to tariffs." (Food, Beverage & Tobacco Products)
• "The ongoing open issues with tariffs between U.S. and China are causing longer-term concerns about costs and sourcing strategies for our manufacturing operations. We were anticipating more clarity [regarding] tariffs at the end of 2018." (Machinery)
• "Business is steady, but pace of incoming orders are slowing." (Furniture & Related Products)
• "Business is robust for certain sectors [aerospace] and flat to downward for others [energy]. Tariffs continue to impact business direction and profit." (Miscellaneous Manufacturing)
• "Caution seems to be the outlook. Are we in a correction, or is the market getting ready to slow over time?" (Fabricated Metal Products)
• "No major change in business operations towards the end of 2018; however, we are carefully monitoring oil prices and outside influence from market conditions to better understand our 2019 outlook and capital plans." (Petroleum & Coal Products)
• "Customers are hedge buying in December as a result of announced price increases starting in January." (Textile Mills)

Manufacturing ISM^® Report On Business^® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price
Chemicals; Electrical Components (2); Electronic Components (5); Freight; Labor — Construction; Metal-Based Products; Natural Gas; PET Resin; Printed Circuit Boards; Steel* (4); and Steel-Based Products (8).

Commodities Down in Price
Aluminum (3); Caustic Soda (3); Crude Oil; Gasoline; Steel* (4); and Steel — Hot Rolled (4).

Commodities in Short Supply
Capacitors (18); Electronic Components (8); Hardwood; Labor; Resistors (14); Steel; and Steel-Based Products (3).

The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

DECEMBER 2018 MANUFACTURING INDEX SUMMARIES

PMI^®
Manufacturing expanded in December, as the PMI^® registered 54.1 percent, a decrease of 5.2 percentage points from the November reading of 59.3 percent. "This indicates growth in manufacturing for the 28th consecutive month. The PMI^® recorded a substantial softening in December and retreated to a level not seen since November 2016, when it registered 53.4 percent," says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI^® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the December PMI^® indicates growth for the 116th consecutive month in the overall economy and the 28th straight month of growth in the manufacturing sector. "The past relationship between the PMI^® and the overall economy indicates that the PMI^® for December (54.1 percent) corresponds to a 3.4-percent increase in real gross domestic product (GDP) on an annualized basis."

THE LAST 12 MONTHS

New Orders
ISM^®'s New Orders Index registered 51.1 percent in December, which is a decrease of 11 percentage points when compared to the 62.1 percent reported for November, indicating growth in new orders for the 36th consecutive month. "Customer demand expansion softened quite notably in December, as the index retreated to an expansion level not seen since August 2016, when it registered 50.5 percent," says Fiore. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

Six of 18 industries reported growth in new orders in December, in the following order: Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Transportation Equipment. The five industries reporting a decrease in new orders in December are: Petroleum & Coal Products; Fabricated Metal Products; Nonmetallic Mineral Products; Paper Products; and Plastics & Rubber Products. Seven industries reported no change in new orders in December compared to November.

Production
ISM^®'s Production Index registered 54.3 percent in December, which is a decrease of 6.3 percentage points when compared to the 60.6 percent reported for November, indicating growth in production for the 28th consecutive month. "Production expansion continued in December, but at lower expansion rates compared to prior periods. December expansion was the weakest since October 2016, when the index recorded 54.2 percent," says Fiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The 10 industries reporting growth in production during the month of December — listed in order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Primary Metals; Textile Mills; Machinery; Transportation Equipment; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The four industries reporting a decrease in production in December are: Fabricated Metal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; and Paper Products.

Employment
ISM^®'s Employment Index registered 56.2 percent in December, a decrease of 2.2 percentage points when compared to the November reading of 58.4 percent. This indicates growth in employment in December for the 27th consecutive month. "Employment continued to expand, supporting production growth, but at the lowest expansion levels since June 2018, when the index registered 56 percent," says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the nine that reported employment growth in December — listed in order — are: Textile Mills; Paper Products; Transportation Equipment; Food, Beverage & Tobacco Products; Chemical Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Machinery; and Miscellaneous Manufacturing. The three industries reporting a decrease in employment in December are: Printing & Related Support Activities; Nonmetallic Mineral Products; and Fabricated Metal Products. Six industries reported no change in employment in December compared to November.

Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations slowed in December, as the Supplier Deliveries Index registered 57.5 percent. This is 5 percentage points lower than the 62.5 percent reported for November. "This is the 27th straight month of slowing supplier deliveries, but at levels that are more manageable than in prior periods. Respondents continue to note transportation difficulties and lead-time extensions, but fewer respondents are reporting slowing deliveries compared to prior months," says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The 12 industries reporting slower supplier deliveries in December — listed in order — are: Apparel, Leather & Allied Products; Textile Mills; Paper Products; Chemical Products; Computer & Electronic Products; Machinery; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Plastics & Rubber Products. The only industry reporting faster supplier deliveries in December is Primary Metals.

Inventories*
The Inventories Index registered 51.2 percent in December, a decrease of 1.7 percentage points from the 52.9 percent reported for November. "Inventories expanded for the 12th consecutive month, but at a slower rate than the prior month. They will likely grow in January due to improved supplier delivery performance," says Fiore. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The nine industries reporting higher inventories in December — listed in order — are: Textile Mills; Wood Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Machinery; Miscellaneous Manufacturing; and Chemical Products. The seven industries reporting a decrease in inventories in December — listed in order — are: Paper Products; Printing & Related Support Activities; Furniture & Related Products; Fabricated Metal Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; and Primary Metals.

Customers' Inventories*
ISM^®'s Customers' Inventories Index registered 41.7 percent in December, which is 0.2 percentage point higher than the 41.5 percent reported for November, indicating that customers' inventory levels were considered too low. "Customers' inventory levels are too low for the 27th consecutive month, and when reviewed with the other elements of demand, new orders and backlog, reflect the only positive sentiment to future production growth," says Fiore.

No industry reported customers' inventories as too high during the month of December. The 13 industries reporting customers' inventories as too low during December — listed in order — are: Textile Mills; Wood Products; Machinery; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Primary Metals; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Plastics & Rubber Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Transportation Equipment.

Prices*
The ISM^® Prices Index registered 54.9 percent in December, a decrease of 5.8 percentage points from the November reading of 60.7 percent, indicating an increase in raw materials prices for the 34th consecutive month. "The price increases across all industry sectors continue, but at sharply lower levels compared to prior months. This is the lowest month of price expansion since June 2017, when the index registered 53 points. The Business Survey Committee noted that price increases are continuing to soften and/or decline in metals (steel and aluminum). Increases continue for freight, labor, electrical and electronic components, printed circuit board assemblies and products manufactured primarily from steel. Shortages continue for electrical and most electronic components. Aluminum, steel and caustic soda prices are down," says Fiore. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Eight of the 18 industries reported paying increased prices for raw materials in December, in the following order: Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Machinery; and Primary Metals. The five industries reporting a decrease in prices for raw materials in December are: Textile Mills; Furniture & Related Products; Plastics & Rubber Products; Petroleum & Coal Products; and Fabricated Metal Products.

Backlog of Orders*
ISM^®'s Backlog of Orders Index registered 50 percent in December, which is 6.4 percentage points lower than the 56.4 percent reported in November, indicating order backlogs were unchanged for the month. "Backlogs did not grow during December, with only three of the big six industries recording expansion," says Fiore.

The six industries reporting growth in order backlogs in December — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; and Transportation Equipment. The five industries reporting a decrease in order backlogs during December are: Printing & Related Support Activities; Nonmetallic Mineral Products; Furniture & Related Products; Fabricated Metal Products; and Miscellaneous Manufacturing. Six industries reported no change in backlog of orders in December compared to November.

New Export Orders*
ISM^®'s New Export Orders Index registered 52.8 percent in December, 0.6 percentage point higher compared to the November reading of 52.2 percent, indicating growth in new export orders for the 34th consecutive month. "Exports remained relatively constant with the prior two months and are at low expansion levels not seen since late 2016. Five of the six big industry sectors contributed to the expansion," says Fiore.

The six industries reporting growth in new export orders in December — listed in order — are: Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Machinery; Transportation Equipment; and Miscellaneous Manufacturing. The four industries reporting a decrease in new export orders in December are: Printing & Related Support Activities; Nonmetallic Mineral Products; Paper Products; and Fabricated Metal Products. Seven industries reported no change in new export orders in December.

Imports*
ISM^®'s Imports Index registered 52.7 percent in December, a decrease of 0.9 percentage point when compared to the 53.6 percent reported for November, indicating that imports grew in December for the 23rd consecutive month. "Imports expansion softened further for the third consecutive month. The index achieved its lowest rate of expansion since May 2017, when it registered 52.3 percent," says Fiore.

The 10 industries reporting growth in imports during the month of December — listed in order — are: Textile Mills; Wood Products; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Transportation Equipment; Fabricated Metal Products; Machinery; and Chemical Products. The four industries reporting a decrease in imports during December are: Petroleum & Coal Products; Primary Metals; Paper Products; and Miscellaneous Manufacturing.

*The Inventories, Customers' Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy
Average commitment lead time for Capital Expenditures decreased by eight days in December to 142 days. Average lead time for Production Materials was unchanged at 68 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased by one day to 32 days.