National Manufacturing ISM Unexpectedly Contracted in December

The U.S. ISM manufacturing index fell to 47.7 in December, from 50.8in November. Consensus had looked for only a slight weakening to50.5. Any reading below 50 indicates contraction. This is the lowestlevel for the index since the spring of 2003, when it bottomed out at46.4. This decline indicates that the dollar's decline has not beenable to increase exports enough to offset the internal weakness in theU.S. economy, as the housing recession spreads. Slowing factoryproduction reduces economic growth. This was the first decline inmanufacturing growth in ten months.
Areas seeing the most weakness include production (47.3), new orders(45.7), and order backlogs (43). Customer inventories rose to 51.5,and prices paid rose to 68. Higher material prices continue to erodeprofit margins. Manufacturing inventories have now contracted for 17straight months. Employment remained below 50, at 48, for the thirdmonth in a row.
Housing related industries appear to be the hardest hit, while exportindustries continue to thrive. The decline appears to be related moreto slowing demand than excess inventories. Credit rationing remainsan issue for demand. The industries showing growth in December wereapparel, energy, food, electronics, machinery and metals.