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).
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.
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.
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).