US manufacturing shrinks for 2nd month amid global slowdown

Manufacturing activity contracted in December for the second straight month, according to the Institute of Supply Management’s (ISM) Manufacturing Report on Business. Anything below 50% is a contraction and a month ago it hit 48.6%. Previous year we had bad weather, the West Coast port labor situation, low oil prices, a strong dollar, and now we have a continuation of the slowdown in China, a new geopolitical situation in the Middle East, and the Federal Reserve taking action in December.

It’s far from a happy new year on Wall Street, where stocks have been sharply lower in early trading. The Dow Jones industrial average tumbled more than 430 points this morning.

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“As the impact of the strong dollar and weak global demand continues to play out, it’s no surprise that we’re seeing these kinds of sub-par prints in manufacturing”, said Millan Mulraine, deputy head of United States research and strategy at TD Securities LLC in NY, whose projection tied for the closest in the survey.

The bulk of the overall pullback was due to the measure of manufacturing employment falling by 3.2 percentage points. New orders, which are often cited as the engine that drives manufacturing, saw a 0.3 percent uptick to 49.2, coming off of its first decline in 35 months, as well as its lowest level since November 2012, in November 2015. “Along those lines, new orders and production continued to indicate weaknesses in the sector, even as each recorded some easing in the pace of decline in December”, said Chad Moutray, chief economist at the National Association of Manufacturers. “Low fuel prices keep full-size SUV and truck sales at high volumes”, said one respondent. Order backlogs thinned to the smallest in three years. Some businesses said that efforts to reduce stockpiles of goods have also held back orders.

About 42% of the surveyed companies said they expect positive market conditions in the next six months, 50% said conditions are likely to remain the same, and about 8% expect conditions to worsen.