US Manufacturing Shows Signs of Life as PMI Hits Nine-Month High
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The US manufacturing sector showed signs of improvement in December, as reported by Reuters, citing data released by the Institute for Supply Management (ISM) on Friday.
According to the latest release, the Purchasing Managers' Index (PMI) rose to 49.3, its highest level since March. This represents a notable increase from November's reading of 48.4.
Despite the uptick, the index remains below the 50 mark, indicating continued contraction in the manufacturing sector, which constitutes 10.3% of the US economy. December marked the ninth consecutive month of contraction. Economists surveyed by Reuters had predicted an unchanged PMI of 48.4.
The sector's struggles stem from the Federal Reserve's aggressive interest rate hikes in 2022 and 2023, aimed at curbing inflation. However, recent sentiment surveys, including the PMI, have suggested that the decline in factory production may have been overstated.
Official government data released last month revealed that manufacturing grew at a 3.2% annualized rate in the third quarter, contributing to the overall economic expansion of 3.1% during that period.
The Fed, having pivoted to a rate-cutting cycle, lowered its benchmark overnight interest rate by 25 basis points in December, marking the third consecutive rate cut since September. This follows a substantial 5.25 percentage point increase in the Fed's policy rate over 2022 and 2023.
The incoming Trump administration's policy proposals, including tax cuts and potential tariffs, could significantly impact the manufacturing sector. While tax cuts are expected to provide a boost, the tariffs could lead to higher raw material costs.
The ISM survey's forward-looking new orders sub-index showed an increase to 52.5 from 50.4 in November, signaling the first expansion since March. Factory production also rebounded after several months of contraction.
The survey's measure of prices paid by manufacturers rose to 52.5 from 50.3, while its gauge of imports climbed to 49.7 from 47.6. This increase in imports could be driven by manufacturers preparing for potential tariff increases. Trump has pledged to impose tariffs on goods from Mexico, Canada, and China.
The survey's gauge of supplier deliveries increased to 50.1 from 48.7, indicating slower deliveries. However, factory employment continued to contract, with the manufacturing jobs index falling to 45.3 from 48.1. This measure has not consistently aligned with official government employment data.