Summary
Today's report from the Institute for Supply Management showed another modest acceleration in manufacturing activity during December. Price pressures eased a bit during the month, but they remained at levels high by historical standards.
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Earlier today, the Institute for Supply Management reported that its index measuring the economy's December manufacturing activity (ISM's "PMI") came in at a reading of 58.6, up from November's 57.8. The December result was right in line with a consensus forecast that was looking for something around 58.5.
This index is configured such that readings above 50.0 indicate sector expansion. Readings below this value are consistent with contraction.
The December rise in the PMI was the second in a row, reversing the three consecutive declines that occurred August through October, inclusive. And while the month's 58.6 reading denoted decent manufacturing-sector strength, it still remained comfortably below the index's most recent peak -- 63.6 in January of last year.
While the overall index continued to be reasonably buoyant, its price measure remained in territory continuing to qualify as "troublesome." The price component came in at a reading of 72.0. This was down 2.0 points from November, but 72.0 clearly remains troublesome by historical standards. It suggests that manufacturing concerns, if passing these higher prices along, are contributing to overall inflation. And if they are not able to pass them along, profit margins remain under growing pressure.
As in the overall index, readings above 50.0 indicate expansion. December was the 34th consecutive month in which this measure showed rising prices. In May of 2003, the recent trough, the price component stood at a much lower 51.5, versus the December 2004 result of 72.0.
ISM announced that 52% of its survey respondents reported higher prices during December, while 8% reported lower ones. The November results were 55% and 7%, respectively. However, the overall shift in skew from the trough during the summer of 2003 persists. For example, in August 2003, these numbers were 19%/13%.
To illustrate how the numbers have been trending, the following table examines overall and price data over the last 24 months. The final section of this section breaks out specific commodities that were up or down in price during December, as reported to ISM by its survey respondents.
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INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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12/04 58.6 72.0 52% 8% 40%
11/04 57.8 74.0 55% 7% 38%
10/04 56.8 78.5 61% 4% 35%
09/04 58.5 76.0 55% 3% 42%
08/04 59.0 81.5 67% 4% 29%
07/04 62.0 77.0 58% 4% 38%
06/04 61.1 81.0 66% 4% 30%
05/04 62.8 86.0 74% 2% 24%
04/04 62.4 88.0 77% 1% 22%
03/04 62.5 86.0 73% 1% 26%
02/04 61.4 81.5 65% 2% 33%
01/04 63.6 75.5 54% 3% 43%
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12/03 63.4 66.0 37% 5% 58%
11/03 61.3 64.0 33% 5% 62%
10/03 57.1 58.5 26% 9% 65%
09/03 54.7 56.0 21% 9% 70%
08/03 55.0 53.0 19% 13% 68%
07/03 52.6 53.0 21% 15% 64%
06/03 50.4 56.5 26% 13% 61%
05/03 50.0 51.5 21% 18% 61%
04/03 46.2 63.5 37% 10% 53%
03/03 46.6 70.0 47% 7% 46%
02/03 49.4 65.5 <------ NA ------>
01/03 53.0 57.5 <------ NA ------>
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On Wednesday (1/5), ISM will report its index covering activity in the economy's non-manufacturing sector. This measure's price component also has shown some disquieting results in recent months.
Commodities Reported Up in Price During December:
Alloy Steel; Aluminum, 14th month; Aluminum Products, 3rd month; Butadiene; Caustic Soda, 8th month; Chemicals, 11th month; Copper, 3rd month; Corrugated Containers, 11th month; Dairy; Diesel Fuel, 4th month; Energy, 12th month; Freight, 10th month; Fuel*, 2nd month; High Density Polyethylene (HDPE), 4th month; Low Density Polyethylene (LDPE), 3rd month; Natural Gas*, 29th month; Packaging, 7th month; Paper, 10th month; PET, 3rd month; Plastic Molding Resins; Plastic Products (various forms), 11th month; Plastics, 5th month; Polyethylene, 4th month; Polypropylene; Propylene, 3rd month; Pulp; Resins, 5th month; Rubber-Based Products, 2nd month; Stainless Steel, 4th month; Stainless Steel Products (various forms); Steel*, 15th month; Steel Products (various forms), 5th month; and Vinyls.
Commodities Reported Down in Price During December:
Fuel*; Gasoline; Natural Gas*, 2nd month; and Steel*, 2nd month.
*Reported as both up and down in price.
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