U.S. Factory monthly performance reaches worst low since 2009

Institute for Supply Management

While 2019 was a pretty good year for most major stock indexes, there have been a few hick-ups throughout the year. Now at the beginning of 2020, the U.S., in particular, was hit by a surprising piece of bad news. As it turns out, a major U.S. manufacturing index has shown that factory output has fallen to the lowest level seen in over 10 years.

According to The Institute for Supply Management, the organization went on to say that its purchasing manager’s index fell to just 47.2 for the month of December, a decline from the 48.1 back in November and marking the fifth consecutive month of declines for the index. How it works is that a score above 50 shows that the manufacturing sector is growing, while a score below 50 suggests a contraction or a depression in the sector.

While most economists polled had expected an increase to 49.0, this unexpected decline hits a new low not seen since 2007. At the same time, factory employment, as well as new orders, have been hovering at multi-year lows according to Reuters, which is only further hampering the U.S. manufacturing sector, not to mention the ongoing U.S.-China trade conflict. Although China and the U.S. announced they have come to an agreement for Phase 1 of the deal, the wider second phase could take longer and be a much bigger hurdle for the Trump administration.

“Trade issues remain an issue for supply managers,” said Timothy Fiore, chairman of the Institute for Supply management’s manufacturing survey committee, on a call with reporters. “I think that unplanned factory closures and extended holiday periods had a part to play on the production side and likely the employment side.”

The index on average hit 51.2 for the entire year, which isn’t bad at all but still happens to be the lowest yearly average in 10 years. In comparison to 2018’s numbers, 2019’s yearly average is down 7.6 points, which happens to also be the steepest 12-month dip since 2001.

The purchasing manager’s index looks at the 18 top manufacturing industries in America, with 15 of them reporting a decline in the month of December. While apparel and wood products were the biggest declines, another likely sector that has fallen is the aerospace market, as Boeing’s problems with its MAX 747 has had an impact on the index as well.

Private home-buildings, however, have been doing well overall, and are one of the few manufacturing areas that have seen some measure of growth, something that’s likely due to the Fed’s rate cuts. Automakers are also reporting a year of reasonable sales figures, although demand for passenger cars has fallen a bit in 2019.

At present, the general consensus seems to be that the U.S. manufacturing sector is doing pretty poorly. While a pick-up could be possible when the China-U.S. trade deal is concluded, phase 2 is likely to take quite a while before the two nations enter into a formal agreement. Until then, investors might want to stay clear from this particular sector at least until better data comes along to indicate that U.S. manufacturing is making a comeback.