The ISM Manufacturing Index firmed to 49.3 in December from 48.4 last month, and ahead of the step back to 48.2 expected. The deceleration in the manufacturing sector slowed again, as a broader segment of the industry reported growth.
Seven of 18 industries reported growth for the month – up from three in November. Despite none of the six largest industries reporting growth, 52% of manufacturing GDP reported a contraction, down from 66% in November.
Demand conditions showed another notable improvement, flipping back into growth territory. The new orders reported its second consecutive expansion (52.5), while new export orders (50.0) ended a months-long period of decline. Moreover, despite an improvement in production, backlogs of orders shrank at a slower pace than in November (45.9 vs. 41.8).
The production index gained again, reaching expansion territory (50.3) for the first time since May. Employment took a step back (45.3) to close out 2024 with it’s 11th contraction of the year.
Price gains accelerated last month (52.5), as the price index reported rising prices for the eleventh time since the start of the year.
Key Implications
A good report for the manufacturing sector to close out 2024. New orders built on last month’s momentum ending the year in positive territory, while export orders have also clawed their way back from a prolonged contraction. Although further interest rate cuts might come at a slower clip, any additional monetary easing will be welcome for the beleaguered sector.
Unfortunately for a manufacturing sector that is starting to show some verve, 2025 could be a rocky ride as uncertainty about the outlook could weigh on investment plans. On the downside, the risk that tariffs and trade restrictions impact supply chains and dent global growth persists, while the future of manufacturing subsidies related to the Inflation Reduction Act are in doubt. Conversely, any further tax cuts could help offset the deleterious effects from a ramp up in restrictive trade policies and higher interest rates.
