The manufacturing PMI in the US rose in December to the highest level in nine months, writes Reuters
WASHINGTON (Reuters) – U.S. manufacturing edged toward recovery in December, with output picking up and new orders rising further, even as factories faced higher year-end input prices.
The Institute for Supply Management (ISM) said on Friday that its manufacturing PMI rose to 49.3 last month, the highest reading since March, from 48.4 in November.
A PMI reading below 50 indicates a contraction in the manufacturing sector, which accounts for 10.3% of the economy. December was the ninth consecutive month in which the PMI remained below the 50 threshold. Economists polled by Reuters had expected the PMI to remain unchanged at 48.4.
Manufacturing has been hit by the Federal Reserve’s aggressive tightening of monetary policy in 2022 and 2023 to tame inflation. But sentiment surveys, including the PMI, exaggerated the size of the drop in factory output.
Government data last month showed manufacturing grew at an annual rate of 3.2% in the third quarter, contributing to the economy’s 3.1% growth rate in the period.
The US central bank is cutting interest rates, cutting its benchmark overnight rate by 25 basis points to a range of 4.25%-4.50% last month. It was the third consecutive rate cut since the Fed began its easing cycle in September.
The benchmark Fed rate is increased by 5.25 percentage points in 2022 and 2023.
President-elect Donald Trump’s new administration’s promise to cut taxes could give manufacturing a boost. But other policy promises, including higher tariffs on imported goods, could push up raw material prices.
The Fed has forecast two interest rate cuts this year, down from the four it forecast in September due to the economy’s resilience and uncertainty about the impact of the Trump administration’s policies.
The ISM survey’s new orders sub-index rose to 52.5 from 50.4 in November, marking the first expansion since March. Production in factories recovered after several months of contracting.
Its measure of prices paid by producers rose to 52.5 from 50.3 in November. Its import ratio rose to 49.7 from 47.6 in the previous month. Manufacturers could import more foreign goods in anticipation of higher tariffs. Trump has promised to impose a 25 percent tariff on all products from Mexico and Canada, and an additional 10 percent tariff on goods from China.
The survey’s rating of supplier deliveries rose to 50.1 from 48.7 in November. A reading above 50 indicates slower deliveries. Factory employment declined further, with the manufacturing jobs index falling to 45.3 from 48.1 in November.
The measure was not a reliable predictor of manufacturing payrolls in the government’s closely watched employment report.
