Economic activity in the manufacturing sector grew in December, with the overall economy notching an eighth consecutive month of growth, according to the latest Manufacturing ISM Report On Business from the Institute for Supply Management.

“The December Manufacturing PMI registered 60.7 percent, up 3.2 percentage points from the November reading of 57.5 percent. This figure indicates expansion in the overall economy for the eighth month in a row after contracting in March, April and May, which ended a period of 131 consecutive months of growth,” Timothy R. Fiore, CPSM, CPM, chair of the Institute for Supply Management manufacturing business survey committee, said. “The New Orders Index registered 67.9 percent, up 2.8 percentage points from the November reading of 65.1 percent. The Production Index registered 64.8 percent, an increase of four percentage points compared to the November reading of 60.8 percent. The Backlog of Orders Index registered 59.1 percent, 2.2 percentage points higher compared to the November reading of 56.9 percent. The Employment Index returned to expansion territory at 51.5 percent, 3.1 percentage points higher from the November reading of 48.4 percent. The Supplier Deliveries Index registered 67.6 percent, up 5.9 percentage points from the November figure of 61.7 percent. The Inventories Index registered 51.6 percent, 0.4 percentage point higher than the November reading of 51.2 percent. The Prices Index registered 77.6 percent, up 12.2 percentage points compared to the November reading of 65.4 percent. The New Export Orders Index registered 57.5 percent, a decrease of 0.3 percentage point compared to the November reading of 57.8 percent. The Imports Index registered 54.6 percent, a 0.5-percentage point decrease from the November reading of 55.1 percent.

“The manufacturing economy continued its recovery in December. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that are limiting manufacturing growth potential. However, panel sentiment remains optimistic (three positive comments for every cautious comment), an improvement compared to November. Demand expanded, with the (1) New Orders Index growing at a strong level, supported by the New Export Orders Index expanding; (2) Customers’ Inventories Index remaining in ’too low’ territory and at a level considered a positive for future production; and the (3) Backlog of Orders Index achieving a 2½-year high.

“Consumption (measured by the Production and Employment indexes) contributed positively (a combined 7.1-percentage point increase) to the Manufacturing PMI calculation. The Production Index hit a 10-year high, as the last reading above 64.8 percent was in January 2011 (65.3 percent), with five of the top six industries reporting moderate to strong expansion. The Employment Index moved into expansion after a single month of contraction due to the inability to attract and retain direct labor. Inputs — expressed as supplier deliveries, inventories and imports — continued to indicate input-driven constraints to production expansion at higher rates compared to November, as indicated by minimal gains in inventory levels and difficulties in expanding imports. Supply chains continue to struggle compared to November, contributing moderately to the Manufacturing PMI calculation. (The Supplier Deliveries and Inventories indexes directly factor into the Manufacturing PMI; the Imports Index does not.) The Prices Index jumped dramatically in December to a level last reached in the summer of 2018, the peak of the last manufacturing expansion cycle.

“Manufacturing performed well for the seventh straight month, with demand, consumption and inputs registering strong growth compared to November. Labor market difficulties at panelists’ companies and their suppliers will continue to restrict the manufacturing economy expansion until the coronavirus (COVID-19) crisis ends.”

Of the 18 manufacturing industries, 16 reported growth in December, including machinery, electric equipment and transportation equipment. The two industries reporting contraction in December were nonmetallic mineral products and printing and related support activities.

What Respondents Are Saying

• “Our company and industry are continuing to have tailwinds from the COVID-19 pandemic research support for vaccines and treatments. While our services are delayed, many customers are not cancelling outright, and business picked up for us in the last month, especially in China, where business growth is back on track.” (Computer and Electronic Products)
• “Continued to survive COVID-19 shutdowns, customer restrictions and personnel issues (work from home and COVID-19 outbreaks) and managed to maintain slight growth over 2019.” (Chemical Products)
• “COVID-19 outbreaks are causing supply chain issues for Tier-1 and Tier-2 suppliers. More work needs to ensure suppliers keep us in the loop with any problem in their supply chain. But end-customer demand for products is keeping production and future outlook positive.” (Transportation Equipment)
• “COVID-19 is affecting us more strongly now than back in March. Vendors/service suppliers unable to maintain levels of service due to employee shortages. Logistic issues also hurting us due to coronavirus-related problems.” (Food, Beverage and Tobacco Products)
• “Current business outlook is strong through the first quarter of 2021. We are anticipating 20 percent growth in sales for 2021.” (Fabricated Metal Products)
• “Sales are now slightly above pre-COVID-19 sales.” (Machinery)
• “Sales are now exceeding pre-COVID-19 levels, but uncertainty remains through the winter months while COVID-19 is still rampant.” (Miscellaneous Manufacturing)
• “Business is stronger than expected, with higher demand for many products. Volatility continues due to the very persistent pandemic and associated risks.” (Electrical Equipment, Appliances and Components)
• “Suppliers are having difficulty finding and retaining labor, leading to supply constraints.” (Plastics and Rubber Products)
• “Fourth quarter production improved more than anticipated, both against the rolling forecast and compared to typical Q4 business.” (Primary Metals)