The December ISM manufacturing survey was grim. The composite index
declined from 36.2 to 32.4, the lowest reading since June 1980, while
the new orders and production indices dropped to the lowest level since
the survey began in 1948. Most everything else was negative as well,
including employment, customer inventories, order backlogs, and export
orders. The one positive thing for manufacturers is that the price they
pay for inputs is falling rapidly, though this is something we generally
already knew from falling commodity prices. Overall this report was a
bad end to a bad quarter, and it gave no real sign of momentum going
into early 2009.· The new orders index declined to 22.7 from 27.9 and the production
index fell to 25.5 from 31.5. Order backlogs are also at the lowest
since this information began to be collected in 1993. At the same time
that orders are very low, the customer inventories index has hit its
highest level since February 1996, signaling that customer inventories
are too high. This suggests efforts to pare inventories could be a big
drag on GDP in the first half of 2009.
· The employment index slipped to 29.9 from 34.2 and is at its lowest
level since November 1982. We saw rapid manufacturing payroll declines
through November, and we will undoubtedly see more of this in next
Friday’s December employment report.
· The ISM manufacturing index had previously shown a complete collapse
in export orders, and things got worse in December. The new export
orders index fell from 41.0 to 35.5, the lowest since this series began
in 1988. Import volumes edged up only to 39.0 from a record low of 37.5.
· The prices paid index dropped to 18.0 from 25.5. It is the lowest
since June 1949, and the third lowest reading ever.