USA manufacturing weak in December

The ISM report coincides with a survey that found that manufacturing in China contracted for a 10th straight month in December, the latest sign of a weak global economy.

The Institute for Supply Management’s index declined to 48.2, the weakest since June 2009, from 48.6 a month earlier, the Tempe, Arizona-based group’s report showed Monday.

A reading above 50% indicates that the manufacturing economy is generally expanding, while below 50% shows it is generally contracting.

ISM(R) ‘s Production Index registered 49.8 percent in December, which is an increase of 0.6 percentage point when compared to the 49.2 percent reported in November, indicating contraction in production for the second consecutive month.

“While unexpected acceleration in the pace of decline was disappointing, an uptick, albeit modest, in each of the new orders and production components was encouraging and hinted at potentially brighter prospects on the horizon for the struggling manufacturing sector”, said Laura Cooper, economist at RBC Economics. “We still have the stronger dollar and there’s been another leg down in energy prices”.

It has been squeezed by low energy prices, which reduced demand for oil- and gas-field equipment, weakness overseas and currency movements. At the same time, robust domestic growth buoyed by labour-market momentum and burgeoning wage gains are supporting consumers’ spending power and preventing U.S. factory activity from slowing even more. The manufacturing sector has been the weaker link for a long time.

Jim O’Sullivan, US economist for High Frequency Economics, noted the ISM manufacturing index represents only a small part of the US economy.

The euro area provided one bit of good news as the region’s factories expanded last month at the fastest pace in 20 months.

“There has been a record-low backlog of orders”.

Only seven of 18 industries reported growth in new orders last month. The non-manufacturing index is expected to rise to 56.5 in December from 55.9 in November.

The section of the index that tracks employment trends was 51.76, compared with 48.16 in November. The reading was just below expectations of 49 from a Reuters poll of 80 economists.

A jobs report due Friday from the Labour Department is projected to show that employment made further strides last month, with hiring building on gains in 2014 that made it the best year since 1999.