December 2023 Manufacturing PMI Caps Off a Stagnant Year
The U.S. manufacturing sector has been navigating perilous waters for the past year, facing continuous contractions and economic uncertainty. But there appears to be change on the horizon. The December 2023 Manufacturing ISM Report On Business showed signs of stability, with the overall PMI inching up to 47.4 from November’s 46.7. While the sector remains in contraction, this slight uptick suggests that the pace of decline might be moderating.
December’s manufacturing ISM report at a glance
Despite the uptick of 0.7 points in December, the final manufacturing ISM report of the year saw plenty of action across its individual metrics.
Order Backlogs saw the biggest single-month move, rising 6 points, followed by a nearly 4-point uptick in New Export Orders. Employment was also a bright spot, recovering 2.3 points to cap off its Q4 slide. Prices continued to fluctuate wildly, ending the month down 4.7 points. Unfortunately, metrics like New Orders and Customers’ Inventories trended the wrong direction: Both contracted in December by 1.2 and 2.7 points, respectively.
In total, five out of six major manufacturing sectors reported contraction in December. Ironically, the PMI ends the year at 47.4, which mirrors January 2023’s figure. It’s a sign that, if nothing else, manufacturing is in a quagmire.
2023 trends to monitor in 2024
The tumultuous trends of 2023 remain evident in December’s report, and they set the stage for what manufacturing can expect in 2024. As we welcome the new year, here are some of the trends worth monitoring in Q1 and beyond:
- Demand flickers: The December 2023 report reveals a sector still in contraction, yet signs of improvement are emerging. While New Orders remain at 47.1, the decline eases compared to November with potential to bottom out and warrant cautious optimism for future demand.
- Production makes a U-turn: The Production index expanded for the first time since July 2023, reaching 50.3. This raises intriguing questions: Are manufacturers adapting to lower demand realities or anticipating an upswing? While conclusions remain elusive, this expansion does suggest positive outcomes for 2024.
- Inflation cools, jobs fluctuate: Easing inflationary pressures — reflected in the Prices index dipping to 45.2 — align with broader economic trends and bode well for future growth. That said, a major concern remains: The Employment index stayed firmly in contraction at 44.5, signifying ongoing job losses and underlining the persistent weakness in economic activity.
Manufacturing’s volatility seems set to persist in the early part of 2024. But as companies seek to adapt and the government’s monetary policy continues to trend toward a soft landing, manufacturing could climb later in the year.
Manufacturing’s future is still being written
The December 2023 Manufacturing ISM Report On Business paints a mixed picture of the U.S. manufacturing sector. While the sector continues to grapple with contraction, there are some encouraging signs. As we move forward, the coming months will be crucial in determining whether the sector can finally turn the corner and reenter expansion territory. Amid the uncertainties, there’s cautious optimism that 2024 could bring a more stable and promising outlook for U.S. manufacturing.
