Economic activity in the manufacturing sector failed to grow in December following 10 consecutive months of expansion, while the overall economy grew for the 74th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

"The manufacturing sector failed to grow in December ending 10 consecutive months of growth. The recent trend has been toward slower growth. However, December was apparently a very tough month as New Orders, Production and Employment were all below the break-even mark of 50 percent. Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better. Slower demand appears to be more of a problem than excessive inventories based on the respondents’ comments Norbert J. Ore, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee."

DECEMBER 2007 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing failed to grow in December as the PMI registered 47.7 percent, a decrease of 3.1 percentage points when compared to November’s reading of 50.8 percent. This is the first month that the manufacturing sector has failed to grow since January 2007. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Production

ISM’s Production Index fell to 47.3 percent in December, a decrease of 4.6 percentage points when compared to November’s reading of 51.9 percent. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

Of the industries reporting in December, eight registered growth: Apparel, Leather & Allied Products; Petroleum & Coal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; Machinery; Miscellaneous Manufacturing; and Primary Metals.

Employment

ISM’s Employment Index registered 48 percent in December, which is an increase of 0.2 percentage point when compared to November’s reading of 47.8 percent. An Employment Index above 49.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The five industries reporting growth in employment during December are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Machinery; Food, Beverage & Tobacco Products; and Chemical Products.

A PMI in excess of 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that the overall economy is growing while the manufacturing sector is contracting. “The past relationship between the PMI and the overall economy indicates that the PMI average for January through December (52.2 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for December (47.7 percent) is annualized, it corresponds to a 1.8 percent increase in real GDP annually.”

Prices

In December, the ISM Prices Index registered 68 percent, indicating manufacturers are paying higher prices on average when compared to November. While 43 percent of respondents reported paying higher prices and 7 percent reported paying lower prices, 50 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

In December, 14 industries reported paying higher prices: Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Chemical Products; Primary Metals; Apparel, Leather & Allied Products; Paper Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Wood Products; Fabricated Metal Products; Machinery; Computer & Electronic Products; and Transportation Equipment.