U.S. ISM manufacturing index falls in December

The U.S. Institute for Supply Management manufacturing index dropped in the month of December. The index fell 5.2 percentage points to 54.1. Markets were expecting less of a slowdown, with a move down to 57.5 from November’s 59.3 print. This marks the most decelerating rate of growth in the U.S. manufacturing sector since November 2016.

All the subcomponents that comprise the headline figure dropped in December. New orders dropped by 11 points to 51.1, while production dropped 6.3 points to 54.3. Employment fell 2.2 points to 56.2. Supplier deliveries fell 5 points to 57.5, while inventories dropped 1.7 points to 51.2. 

The trade components of the report saw a slight rebound in export orders and a mild slowdown in import order growth. However, these levels continue to be well below those seen at the time the U.S. administration levied tariffs on steel and aluminum imports this past March. Markedly, import orders in December were expanding at the slowest rate since May 2017.

Although volatile and not seasonally adjusted, both the fall in prices paid and the order backlog components are worth noting. Prices paid dropped 5.8 points to 54.9, the slowest reported rate of price rises since June 2017. Reduced price pressures are due to falls in aluminum and steel products, while crude oil/gas prices also dropped. The backlog of new orders did not grow in December, the first time this has taken place since January 2017. Out of 18 manufacturing industries, 11 saw growth in December. Six industries saw contraction.

“Comments by survey respondents suggest that demand has slowed, and is most evident in the fall in the growth of new orders. After a strong showing in the first half of 2018, global manufacturing surveys continue to signal a broad economic slowdown beginning in the second half of 2018”, said TD Economics in a research report.

Slowing foreign demand is expected to be a headwind to U.S. manufacturers through the first half of 2019. However, trade talks between the U.S. and China might prove fruitful in the fourth quarter, and if a deal is reached should help ease much of economic policy uncertainty while also working to restore sentiment in the global economy, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 37.6591. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex