US manufacturing declines at fastest pace in 6 years

WASHINGTON • Manufacturing in the United States contracted last month at the fastest pace in more than six years as factories, hobbled by sluggish global growth, cut staff at the end of last year.

The Institute for Supply Management's (ISM's) index declined to 48.2, the weakest since June 2009, from 48.6 a month earlier, the Arizona-based group's report showed yesterday.

Readings lower than 50 indicate contraction. The median forecast in a Bloomberg survey of 72 economists was 49.

"Manufacturing's struggles are going to extend into 2016," Mr Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, said before the report. "We still have the stronger dollar and there's been another leg down in energy prices."

Struggling overseas demand and declines in commodity prices that are hurting investment in energy and agriculture continue to limit orders for American manufacturers. At the same time, robust domestic growth buoyed by labour-market momentum and burgeoning wage gains are supporting consumers' spending power and preventing US factory activity from slowing even more. Estimates for the manufacturing index from economists in the Bloomberg survey ranged from 46.6 to 51.

Factories globally ended the year on a weak note, contributing to a sell-off in stocks worldwide yesterday. Manufacturing in China contracted last month for a fifth consecutive month as the world's second-largest economy is poised to grow this year at the slowest pace since 1990.

In Britain, manufacturing unexpectedly cooled last month, suggesting it made little contribution to the economy in the final quarter of last year.

The euro area provided one bit of good news as the region's factories expanded last month at the fastest pace in 20 months. Manufacturing grew in all nations covered, including Greece, for the first time since April 2014.

While the ISM's gauge of new orders improved to 49.2 last month from 48.9 in November, it still showed bookings were falling. Order backlogs thinned to the smallest in three years.

The measure of export orders showed foreign demand climbed surprisingly last month for the first time in eight months, signalling the worst may be over. The index rose to 51 from 47.5 in November. Weakness in the ISM's factory employment index was behind the drop in the overall measure.

The hiring gauge fell to 48.1 last month from 51.3 in November, yesterday's report showed. The production gauge improved to 49.8 from 49.2 in November.

A jobs report due Friday from the Labour Department is projected to show that employment made further strides last month, with hiring building on gains in 2014 that made it the best year since 1999.

Economists are predicting that payrolls climbed by about 200,000 last month after a 211,000 increase in November.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 05, 2016, with the headline 'US manufacturing declines at fastest pace in 6 years'. Print Edition | Subscribe