Price Increases, Slower Growth Color December’s Manufacturing Report

Once again, the manufacturing sector and the overall economy expanded in December, according to the latest Institute for Supply Management (ISM) Report on Business. However, that growth was slower than it’s been more than two years. The December Purchasing Managers Index (PMI) was 54.1%, down from 59.3% the month before and reaching its lowest point since November 2016.

While food industry respondents reported growth, they also reported price challenges: “Starting to see more and more inflationary increases for raw materials. Also, suppliers [are] forcing price increases due to tariffs.”

Here’s what the Food, Beverage, and Tobacco industry saw in December:

• Growth in new orders

• Growth in production

• Growth in employment

• No change in speed of supplier deliveries

• Higher raw materials inventories

• Customer inventories too low

• Increased prices for raw materials

• No change in order backlogs

• Growth in new export orders

• Growth in imports

In terms of buying policy, lead time for capital expenditures was down by eight days to 142, while lead time for maintenance, repair, and operating supplies was down by one day to 32. Lead time for production materials remained unchanged.

Though the indexes indicate growth (anything above 50% is expansion), that growth happened at a much slower rate than in the previous month. For example, the Production Index dropped from 60.6% in November to 54.3% in December, while the New Orders Index dropped from 62.1% to 51.1%. For a discussion of what these results might portend, read Does December’s Manufacturing Growth Slowdown Spell Doom For The U.S. Economy? by supply chain expert and food industry veteran Jim Vinoski.