By Lucia Mutikani
WASHINGTON- US manufacturing moved closer to recovery in December, with production rebounding and new orders rising further, but the outlook remains uncertain amid the threat of higher tariffs that could raise prices of imported raw materials.
Despite the increase in the Institute for Supply Management’s (ISM) Purchasing Managers Index (PMI) to a nine-month high last month, the tone of the survey was less upbeat, with phrases such as “volume decreases” and “significant slowdown” appearing in some of the comments from respondents. None of the six largest manufacturing industries grew last month.
“Manufacturers ended the year with a hint of optimism, but they could face some pretty stiff challenges in the new year,” said Sal Guatieri, a senior economist at BMO Capital Markets.
The ISM said on Friday that its manufacturing PMI increased to 49.3 last month, the highest reading since March, from 48.4 in November. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.3 percent of the economy.
December marked the ninth consecutive month that the PMI remained below the 50 threshold. Economists polled by Reuters had forecast the PMI would be unchanged at 48.4.
Seven industries, including primary metals, electrical equipment, appliances and components as well as paper products and miscellaneous manufacturing reported growth last month. Among the seven industries reporting contraction were textile mills, machinery and transportation equipment.
Some manufacturers of food, beverage and tobacco products said they were “seeing a softening in sales,” adding that this “is concerning, as it’s our peak season.”
Transportation equipment makers reported “automotive and powersport volume decreases.”
Machinery manufacturers reported a “significant slowdown in production requirements in the last two months of the year.” In the fabricated metal products industry, some businesses reported “order levels well below forecast projections.”
The mood was, however, fairly optimistic among manufacturers of electrical equipment, appliances and components, with some saying that “the increase in new orders has our plant at full capacity.” Makers of miscellaneous goods noted the “combo of seasonal factors plus increased demand outlook for 2025.”
Primary metals producers said “there is definitely an uptick this month, though not a stable one.”
Manufacturing was battered by the Federal Reserve’s aggressive monetary policy tightening in 2022 and 2023 to tame inflation. But sentiment surveys, including the PMI, have exaggerated the magnitude of the decline in factory production.
Government data last month showed manufacturing growing at a 3.2 percent annualized rate in the third quarter and contributing to the economy’s 3.1 percent pace of expansion during that period.
The US central bank lowered its benchmark overnight interest rate by 25 basis points to the 4.25 percent-4.50 percent range last month. It was the third consecutive rate cut since the Fed started its easing cycle in September. — Reuters
