The US manufacturing sector ended 2024 on a downbeat note. After nearing stabilization the previous month, December saw a sharp decline in new orders.
The rate of decline in output also accelerated, while companies cut back on purchasing activity and inventory stocks. Business confidence also eased, after jumping higher in November. On a more positive note, employment increased modestly for the second straight month.
Manufacturers faced a sharp rise in input costs, prompting them to raise selling prices again. The seasonally adjusted US global manufacturing PMI came in at 49.4 in December, down from 49.7 in November but up from a preliminary reading of 48.3.
The latest data showed a sixth straight monthly deterioration in the health of the manufacturing sector. The deterioration in December was more pronounced than that seen in November, but still modest overall.
Manufacturing output fell for a fifth straight month, and the rate of contraction was the fastest in a year and a half. The decline in production generally reflected a decline in new orders.
New export orders also fell, and to a greater extent than total new business. Europe and Australia were among the export markets that reported falling demand.
Where new orders fell, this was often linked to customers’ reluctance to commit to new projects. In some cases, this reflected a pause before the new administration took office in January.
However, survey respondents generally indicated that the incoming administration was expected to help boost demand conditions in the new year. Consequently, manufacturers were optimistic that production would increase throughout 2025. The positive outlook for the year ahead encouraged manufacturers to increase employment levels for the second month in a row. Job creation was modest and the increase in workforce numbers at a time of falling new orders
US Final Manufacturing PMI and their economic importance
The Services PMI report (Services PMI) usually consists of several key components that provide insights into the state of the services sector. These components include:
Business activity: This component measures the level of business activity in the services sector during the reporting period. It reflects whether companies are experiencing growth, contraction or stability in their operations.
New orders: New orders refer to the demand for services in the market. An increase in new orders indicates increased demand, while a decline may indicate weaker demand.
Employment: The Employment component of the Services PMI report shows changes in the level of employment within the services sector. It indicates whether companies are hiring, laying off, or maintaining their workforce.
Work arrears: Work arrears represent the amount of unfinished work accumulated by service providers. A high level of arrears may indicate capacity constraints or increased demand.
Business Outlook: This component measures providers’ sentiment regarding future business conditions. A positive outlook can indicate confidence in future growth, while a negative outlook may indicate concerns about economic conditions.
Supplier deliveries: Supplier deliveries measure the speed at which services are delivered by suppliers to businesses. Slower deliveries may indicate supply chain disruptions or increased demand.
Composite PMI: The composite PMI combines the Services PMI and the Manufacturing PMI to provide a comprehensive overview of economic activity in both the services and manufacturing sectors.
Together, these components provide a detailed picture of the health and performance of the service sector, providing valuable insights into economic trends, business conditions and potential future developments. Analyzing these components helps businesses, policymakers, and investors make informed decisions based on the current state of the service industry.
Difference between PMI for services and manufacturing
The services PMI (services PMI) and the manufacturing PMI (manufacturing PMI) are both important indicators of economic health, but they focus on different sectors of the economy. Here are some of the key differences between the two:
Sector Focus:
- The Services PMI measures business activity in the services sector, which includes industries such as healthcare, finance, retail, hospitality, and transportation.
- On the other hand, the manufacturing PMI focuses on the manufacturing sector, which involves the production of physical goods such as automobiles, machinery, and electronics.
Nature of output:
- The PMI in the services sector reflects the provision of intangible services, such as consulting, education, healthcare and tourism.
- The manufacturing PMI reflects the production of tangible goods in factories and facilities.
Differences in the supply chain:
- Manufacturing usually involves complex supply chains with raw materials, intermediate goods, and finished products. The manufacturing PMI often includes components such as supplier deliveries and inventories.
- Services are often delivered directly to consumers or other businesses, relying less on complex supply chains than manufacturing.
Factors affecting performance:
- The performance of the services sector is closely linked to consumer spending, business investment, and general economic sentiment.
- The performance of the manufacturing sector is influenced by factors such as global demand for goods, industrial production, and input costs.
Impact on the economy:
- The services sector tends to be more resilient during economic downturns, when demand for certain services such as healthcare and education remains relatively stable.
- Manufacturing is more cyclical and sensitive to changes in world trade, industrial production, and consumer demand for durable goods.
Employment Patterns:
- The services sector is often more labor-intensive than manufacturing, with a higher proportion of service jobs in many economies.
