The two leading gauges of U.S. manufacturing activity were released on the first trading day of the year. Markit’s PMI Manufacturing Index and ISM’s Manufacturing Index both showed a decline in manufacturing sector productivity in December.
Markit’s PMI Manufacturing Index fell from 52.8 to 51.2 in December. The PMI Index reported lower volumes, fewer orders and continued negative effects from the strengthened dollar on global exports. Overall, the report gave a dismal outlook for the manufacturing sector in 2016 as industry experts see headwinds in the sector remaining as key factors for slow growth throughout the year.
The ISM’s Manufacturing Index reported similar results. For the month of December, the ISM Index was down 0.4% from November’s reading of 48.6%. Lower price levels were a significant factor for manufacturing companies in December, as the Prices Index portion of the composite reported a 2% decrease for the month. According to ISM, its Prices Index component was down from 35.5% in November to 33.5% in December, with prices for raw materials down for the 14th consecutive month. As a direct result, energy providers posted some of the manufacturing sector's most significant production decreases in December.
Global manufacturing trends also reflected the downturn in manufacturing, with China’s manufacturing report significantly jarring markets on Jan. 4. China, the world’s second largest economy, reported a 10th month of consecutive decreases in its Caixin PMI Index. The Caixin PMI fell to 48.2 from 48.6 and was far below a Reuters forecast, which showed expectations for an increase in the Caixin PMI to 49. Worries mounted as the Caixin PMI continued to remain below 50, a key level that signifies contraction. The Caixin PMI decline was a key catalyst for halted market trading in China. All market trading in China was halted as activity fell below market regulated levels.
In the U.S. the Dow Jones Industrial Average was down 2% in morning trading as stocks fell following the lower manufacturing reports. At mid-morning, Dow components Apple (AAPL, Financial), Microsoft (MSFT, Financial), IBM (IBM, Financial) and Nike (NKE, Financial), all manufacturing stocks in Industry Week’s top 50, were lower. Losses were led by Apple down 2.5%. For the American manufacturing industry, many U.S. economists felt that the market reaction was slightly overdone given the soft landing expected for China’s economy in 2016 and the improved GDP growth prospects for the U.S. in 2016.
Disclosure: I do not hold shares of any stocks mentioned in this article.
