December 2013 ISM Reports

Click image for larger version

According to the Institute for Supply Management (ISM), expansion of economic activity in the U.S. manufacturing sector slowed slightly in December The PMI registered 57.0 percent, a decrease of 0.3 percentage point from November's reading (50 percent is the breakpoint between contraction and expansion). “Comments from the [respondent] panel generally reflect a solid final month of the year,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “capping off the second half of 2013, which was characterized by continuous growth and momentum in manufacturing.”

Click image for larger version

December’s general manufacturing sub-indices were mixed: New orders, employment, deliveries and input prices all expanded relative to November. Production, order backlogs, and exports -- while still expansionary -- retreated. Most encouraging from a forward-looking standpoint, inventories contracted (albeit at a slower pace in the case of customers’ inventories); this suggests the huge 3Q2013 inventory run-up is perhaps being drawn down by increased demand. Both Wood Products and Paper Products expanded in December. In the case of Wood Products, rising inventories apparently outweighed a drop in order backlogs. "Markets are sound,” wrote one Wood Products respondent. “We typically see a seasonal 4Q slowdown. However, this year … not so." Paper Products’ expansion was based on broader support, including production, employment, and order backlogs; "Orders and price continue to be strong," observed one Paper Products respondent.

Growth in the service sector also slowed in December. The non-manufacturing index (now known simply as the “NMI”) registered 53.0 percent, 0.9 percentage point lower than November’s 53.9 percent -- and the lowest point since June. Except for employment, the pace of supplier deliveries, and inventories, all indices either rose more slowly or contracted more quickly than in November. The most notable development was the tumble in New Orders (down from 56.4 to 49.4) -- the first contraction in the New Orders index since July 2009. “Despite the substantial decrease in the New Orders Index.” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee, “respondents’ comments predominately reflect that business conditions are stable.”

Click image for larger version

Among the individual service industries we track, only Construction expanded (thanks to new orders and new export orders). Real Estate retreated under falling new orders and inventories. Ag & Forestry was unchanged.

Commodities up in price included corrugated packaging and wood. Some respondents indicated paying more for gasoline and diesel, while others paid less.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.