The specter of a West Coast labor strike put a damper on U.S. manufacturing growth during the month of December. Although the sector expanded for the 19th consecutive month, the rate of expansion among U.S. manufacturers slowed a bit as the year drew to a close.
Several manufacturing sectors experienced delays due to a work slowdown at West Coast shipping ports, according to the Institute for Supply Management (ISM). The longshoreman’s union, which represents the dockworkers that offload shipments, is currently in contract negotiations with the Pacific Maritime Association. Although workers deny a slowdown, a number of respondents to the ISM’s monthly business survey said raw materials and components shipments have been left sitting at the docks.
“The West Coast ports slow-down is really affecting deliveries of our Asian purchases,” said one manufacturing executive. “West Coast port issues have greatly impacted our incoming materials. We are air freighting many parts from Japan and Asia to support production while parts sit at the dock,” said another.
The ISM’s key index of manufacturing activity, the PMI, registered 55.5 percent in December, a decrease of 3.2 percentage points from November’s reading of 58.7 percent. Production, new orders and inventories in December also declined. “I wouldn’t make too much of the downward trend,” said Bradley J. Holcomb, chair of the ISM’s Manufacturing Business Survey Committee. “The trend for  was really good – 55.5 percent at the close was a bit down – but is still indicative of GDP growth.” Any number above 50 indicates expansion; a number below 50 signals contraction.
The PMI has increased steadily since 2012, Holcomb pointed out. “The forecast for 2015 is even better [than 2014],” he said. “Things continue to look favorable.”
Oil prices also influenced December’s results. Falling prices have had a mixed impact on the market, Holcomb explained. Buyers of petroleum goods have been holding off their purchases in anticipation of even lower prices. Companies that manufacture such goods, however, have slowed their production down. The ISM’s new orders index registered 57.3 percent in December, a decrease of 8.7 percentage points from November’s level of 66 percent. The production index registered 58.8 percent, 5.6 percentage points below the November reading of 64.4 percent. Inventories of raw materials registered 45.5 percent, a decrease of 6 percentage points from the November reading of 51.5 percent.
“The oil dynamic has a plus or minus impact depending on where in the industry you sit,” Holcomb said. In the computer and electronic products sector, executives are expecting a slowdown related to the energy market. The apparel and leather segment expects business to improve.
On a positive note, employment during December increased by 1.9 percentage points to reach 56.8 percent -- the 18th consecutive month of growth in employment. “That’s always a pleasant sight, particularly at year-end,” said Holcomb. “As our semiannual report indicated, manufacturers are calling for revenue growth in 2015 and that’s being reflected in employment.”
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