US factory display unexpectedly drops to its lowest level since 2009

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(Bloomberg) – US manufacturing has had a tumultuous year with the weakest monthly performance since the end of the recession, with orders shrinking and factories continuing to downgrade production.

Equity and treasury yields, which were already lower after a US airstrike killed one of Iran's most powerful military leaders, prolonged the decline, according to the report.

The purchasing managers' index of the Institute for Procurement Management fell from 48.1 to 47.2 in December, the fifth consecutive month in which the economy was in decline, and there were no estimates for an increase in a Bloomberg survey among economists, a report from Friday. It was the worst since June 2009 and the eighth drop in the past nine months. Values ​​below 50 indicate that activity is decreasing.

The deterioration was due to the weakest order intake and production inflows since April 2009. Data shows that American factories continue to be plagued by domestic corporate investment declines, weaker global demand, and a recently escalating trade war between the United States and the United States China.

15 of the 18 manufacturing industries reported a decline in December, led by clothing and wood products.

The fifth consecutive ISM below 50 is in contrast to the IHS Markit Purchasing Managers' Index, which fell slightly to 52.4 in December but was close to a seven-month high. The country's two most-viewed manufacturing surveys also pointed in different directions in November, highlighting the disagreement between economists and investors, where the index provides a more accurate picture of the sector.

The ISM index averaged 51.2 in 2019, also the lowest level in a decade. That is 7.6 points less than the average of 2018, the steepest decline since 2001.

Despite this, economists expect the record-breaking expansion of the U.S. to continue in 2020 despite the uneasiness of the factories. A U.S.-China partial trade agreement was announced on December 13, and President Donald Trump said this week that he would sign it on January 15.

Uncertainty overhang

While thawing trade relationships could help, factories remain exposed to the effects of political uncertainty, a weak corporate investment climate, and a slowdown in global growth, which will continue to impact factory decisions in 2020.

One reason that ISM's production and order intake may not recover quickly is because of the Boeing Co. battle with their 737 Max aircraft. Boeing urged its suppliers to stop supplying spare parts from mid-January after the plane landed.

The ISM employment rate fell in December to its lowest level since January 2016, indicating that manufacturing employment remains weak, even though the rest of the labor market remains broadly strong.

An index of prices paid showed that input costs rose for the first time since May because supplier deliveries were over 50, indicating that input deliveries are slowing.

The import display fell for the eighth time in nine months and the export display continued to drop below the line between expansion and contraction.

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– With the support of Chris Middleton.

Contact the reporter about this story: Reade Pickert in Washington at epickert@bloomberg.net

Contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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