U.S. manfacturing sector contracts for second straight month in December - ISM

By Scott Kanowsky

Investing.com -- The U.S. manufacturing sector shrank by more than expected in December and contracted for the second straight month, according to numbers on Wednesday that were released at the same time as key labor market data.

The Institute for Supply Management's index gauging activity in the manufacturing industry - a little over a tenth of the total U.S. economy - slipped to 48.4 during the month. The reading is down from 49.0 in November, which was itself the first time since May 2020 that the measure fell below the 50-point mark denoting contraction.

Economists had predicted that the figure would decline to 48.5.

Manufacturing firms have faced pressure in recent months from elevated borrowing costs linked to aggressive Federal Reserve monetary policy tightening aimed at cooling red-hot inflation. The sector is also being hit as consumers spend more on services and less on goods, following the easing of pandemic-era restrictions.

The ISM's forward-looking new orders sub-index dropped to 45.2, remaining in contraction territory for the fourth straight month. Order backlogs also shrank despite the index gauging this number increasing slightly.

However, raw material prices continued to decline for a third consecutive month in a sign that the inflation outlook is improving as supply bottlenecks wane. A measure of prices paid by manufacturers dipped to 39.4, the lowest mark since April 2020.

"Price declines continue to be driven by relaxation in energy markets, steel, aluminum, chemicals, plastics, corrugate as well as lower freight costs," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, in a statement.

The ISM data comes as a major measure of job market demand in the U.S. inched down only slightly in November. Job openings in the world's largest economy decreased by 54,000 to 10.46 million during the period, according to the Labor Department's monthly Job Openings and Labor Turnover Survey - also known as the JOLTS report.

It was above forecasts, and the 17th consecutive month that job openings have remained above 10 million.

Both data sets are expected to factor into how Fed policymakers gauge the effect of their unprecedented interest rate hikes throughout 2022 on the process of disinflation in the U.S.

The minutes from the central bank's last policy meeting, due out later today, should shed light as well on how strongly officials feel about the need to keep borrowing costs high if inflation – as many expect – continues its downward path this year.