By Xavier Fontdegloria
Activity in U.S. factories contracted in December for a second consecutive month as demand for goods continued to decline as interest rates rise, data from a purchasing managers survey showed Wednesday.
The Institute for Supply Management said its index of U.S. manufacturing activity fell to 48.4 in December from 49.0 in November, further below the 50.0 threshold that separates expansion from contraction. The reading broadly matches the 48.5 consensus forecast from economists polled by The Wall Street Journal.
Activity in the U.S. factory sector cooled gradually in 2022 as demand for goods waned, driven by higher borrowing costs and consumer spending switching toward services. In this context, manufacturing output is expected to fall further over the next few months as the effects from higher interest rates continues to feed through, economists say.
The data show that goods producers are slowing their output amid softening new order rates over the last seven months, said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.
In December, the sector's contraction was driven by declining output, new orders, as well as shortening delivery times, ISM data showed.
The production index fell to 48.5 in December from 51.5 in November, suggesting that output contracted. The new orders index fell to 45.2 from 47.2, in a sign orders fell at a steeper pace than the previous month.
"Customer demand continues to be depressed," said one respondent from the chemical products sector. "While 2023 pipeline is looking very positive, current demand is significantly down."
The employment index increased to 51.4 from 48.4, pointing to slight employment gains. However, firms said they continue to struggle in hiring and retaining workers amid a still tight job market.
"Many panelists' companies confirm that they are continuing to manage head counts through a combination of hiring freezes, employee attrition and layoffs," Mr. Fiore said.
The supplier deliveries index fell to 45.1 from 47.2, its lowest reading since March 2009, adding to evidence that supply chains are normalizing after the Covid-19 pandemic related bottlenecks.
The ISM manufacturing survey also pointed to rapidly easing inflation pressures at factory gates, with the prices index falling to 39.4 from 43.0, the lowest level since April 2020.
None of the top six manufacturing industries reported increases in prices in December. "Price declines continue to be driven by relaxation in energy markets, steel, aluminum, chemicals, plastics, corrugate as well as lower freight costs," Mr. Fiore said.
Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com
(END) Dow Jones Newswires
01-04-23 1038ET
