"Manufacturing activity continued to decline at a rapid rate during the month of December. The decline covers the full breadth of manufacturing industries, as none of the industries in the sector report growth at this time. New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948. Order backlogs have fallen to the lowest level since ISM began tracking the Backlog of Orders Index in January 1993. Manufacturers are reducing inventories and shutting down capacity to offset the slower rate of activity."
Get use to hearing reports like this for a few months. My guess is we're at the low point for this cycle.
Let's look a bit deeper into the numbers. Here is the big chart from econoday:
Click for a larger image
The proper term for that chart is "cliff diving." Simply put, manufacturing is falling off a cliff. As the report says, "Manufacturing contracted in December as the PMI registered 32.4 percent, 3.8 percentage points lower than the 36.2 percent reported in November. This is the lowest reading since June 1980 when the PMI registered 30.3 percent."
In addition, consider these points:
ISM's New Orders Index registered 22.7 percent in December, 5.2 percentage points lower than the 27.9 percent registered in November. This is the lowest reading on record for this index going back to January 1948.
Lowest since 1948. Translation: no one is buying anything right now. That means everyone is deeply concerned about the future. They are conserving cash and making their inventories very lean.
And there is an issue of deflation:
The ISM Prices Index registered 18 percent in December compared to 25.5 percent in November, indicating manufacturers are paying lower prices on average when compared to November. This is the lowest reading for the index since June 1949 when it registered 10.6 percent.
And worst of all, this slowdown is occurring all over the world:
Manufacturing activity contracted in Germany, France, Italy and Spain, pushing the Markit Economics survey of euro-zone manufacturing last month to the lowest level in its 11-year history. In Russia, the VTB Bank Europe manufacturing index fell to its lowest level since it began in September 1997.
The data from Asia also looked grim. A survey by brokerage firm CLSA showed employment and output fell at a record clip in Chinese factories in December. Indian manufacturers cut jobs for the first time in the history of a survey by ABN AMRO Bank.
The simultaneous woes of manufacturing in rich countries and poor countries are something new in the global economy. In the past, weaknesses in U.S. and European manufacturing meant a windfall for developing economies, which took up the slack.
Hong Kong, which like the euro zone slipped into recession in the third quarter, saw manufacturing activity as surveyed by Markit decline for the sixth straight month. Earlier this week, Japan's Nomura/JMMA index of manufacturing sank to a new low, due to a reduction in overseas demand and the deteriorating global economy.
The spreading and deepening manufacturing slump has some experts worried that the global economy in 2009 won't fare much better than last year. J.P. Morgan's global manufacturing index, released Friday and compiled from surveys in 19 countries, reached a new low in December, consistent with a "severe" 17% annualized contraction in global activity. J.P. Morgan estimates global output declined 4% in the last three months of 2008 compared to the previous quarter, reflecting reduced spending and available financing on autos, housing and capital equipment.
