US: Manufacturing is slowing, price pressure is abating – Wells Fargo

The ISM Manufacturing report for December showed activity continues to slow. Analysts at Wells Fargo point out that the report showed price pressure is abating, and argued that while the labor market is slowing, it's doing so only gradually.

Falling prices at the expense of contraction in activity

“The ISM manufacturing index slipped further into contraction territory in December dipping to 48.4, the lowest number for this factory bellwether since the early days of the pandemic in May 2020. New orders and production were both lower and both were also in contraction territory. Both imports and exports fell deeper into contraction amid abounding signs of slowing global growth.”

“The largest decline was not in orders or in production, but rather in the prices component which slid 3.6 points to 39.4, approaching lows hit amid the height of the pandemic lockdowns in March and April of 2020. Not only that, the prices paid measure has posted declines for 9 straight months, suggesting that the fastest Fed tightening since the 1980s is being met with the intended drop in price pressures.”

“On Friday, we'll get the latest data for total payrolls in the U.S. economy in which we still expect to see payrolls rose by 205K in December. While this will mark a step down from the 272K workers added on average per month over the prior three months, it's still above pre-pandemic averages and consistent with a solid pace of hiring.”