December Manufacturing: Still Growing

January 3, 2006 – The ISM diffusion index of U.S. manufacturing activity fell by 3.9 index points to 54.2 in December – signaling a return to more moderate growth in the manufacturing sector after three exceptionally strong months (Chart 1).

Chart 1. ISM index of U.S. manufacturing activity. January 1987 through December 2005.

Manufacturers’ new orders and their production both seem to have slowed roughly in step with overall manufacturing activity (Chart 2). The ISM manufacturing new order index fell by 4.3 index points to 55.5 in December, and the ISM manufacturing production index fell by 3.6 index points to 57.0.

Chart 2. ISM indices of manufacturing production and new orders. January 1987 through December 2005.

The ISM manufacturing input price index plunged by 11 index points to 63.0 in December, extending November’s steep 10 point drop (Chart 3). However, even after these extra-large declines, the relatively high level of this index continues to signal unusually strong growth in manufacturers’ commodity costs.

Chart 3. ISM index of manufacturing input prices. January 1987 through December 2005.

The ISM manufacturing employment index fell by 3.9 index points to 52.7 in December, but continued to signal rising manufacturing employment (Chart 4). Thus, we might be due for a third straight monthly gain in December manufacturing payrolls (coming Friday).

Chart 4. ISM index of manufacturing employment and payroll employment in manufacturing. January 1987 to date.

Suzanne Rizzo

Sources:

Institute for Supply Management (http://www.ism.ws) - the ISM index of U.S. manufacturing activity (also known as the Purchasing Managers’ Index, or PMI) and other related manufacturing indicators.
U.S. Department of Labor, Bureau of Labor Statistics (http://www.bls.gov) - manufacturing payroll employment.
National Bureau of Economic Research (http://www.nber.org) - recession dates.