Gauges of U.S. business activity continue to send mixed signals. For example, the Institute for Supply Management's popular manufacturing index declined in December to 47.2, worse than expected and the weakest reading since June 2009. New orders and other forward-looking components were also softer than anticipated last month, with the surprise disruptions to the production of Boeing’s 737 MAX aircraft perhaps offsetting any boost from the de-escalation in trade tensions between the United States and China.
This particular ISM index has had a lot of critics recently because regional indices and IHS Markit’s similar manufacturing PMI were generally more upbeat in the fourth quarter. Altogether it appears that more time (data releases) will be needed to better gauge the health of the goods-producing arena. Fortunately, the service-providing sector accounts for a much larger share of the economy, and metrics from both ISM and Markit, albeit well off of the cycle highs, continue to signal a net expansion in activity that may even be starting to strengthen. While the service sector is not completely sheltered from manufacturing weakness, the latest détente in the trade war should help reduce the likelihood of any more negative spillovers. Below are a few highlighted comments from surveyed managers across a variety of industries in December:
- "Budgets and business accelerating." (Public Administration)
- "Weather and the holiday season have had an impact on residential new construction sales and production. While demand is outstripping supply in the housing market, business is down due to global trade insecurity causing affordability, labor and cost pressures." (Construction)
- "Business activity and growth in our business continues to expand." (Management of Companies & Support Services)
- "New prospects have improved this month, although continuing uncertainty is causing clients to delay confirmation." (Professional, Scientific & Technical Services)
- "Cautiously optimistic is the rule these days. Sales are decent, but we're wondering what 2020 will bring. Still hedging that it will be successful — but maybe not as much as this year." (Transportation Equipment)
- "Starting to see suppliers try to pass on costs associated with tariffs. Uncertainty on the trade front continues to keep agricultural markets on the defensive." (Food, Beverage & Tobacco Products)
- "Our outlook for the first quarter of 2020 is positive. We have secured contracts from a number of former customers and expect sales growth of about 5 percent over Q4 of 2019." (Textile Mills).
Sources: Econoday, ISM, IHS Markit, FRBSL