U.S. manufacturing gauge falls while price pressures ease

A measure of U.S. manufacturing fell short of expectations at the end of 2021, reflecting declines in gauges of delivery times and prices that belie an otherwise solid demand picture.

The Institute for Supply Management’s gauge of December factory activity fell to 58.7, the lowest level since January 2021, from 61.1 in the prior month, according to data released Tuesday. Readings above 50 indicate expansion and the median forecast in a Bloomberg survey of economists called for 60.

The pullback in the headline figure obscures strength in the underlying components. The group’s gauges of supplier deliveries and prices paid for materials -- while still elevated - both fell to their lowest levels in more than a year.

Improved delivery times and lower input prices typically indicate softer demand. However, the latest declines suggest capacity constraints are beginning to loosen. That’s welcome progress for manufacturers who have struggled to keep up with demand because of materials shortages, hiring challenges and transportation bottlenecks.

The ISM’s demand indicators remained firm in December, suggesting the manufacturing sector will continue to expand at a healthy pace. The ISM employment gauge rose to an eight-month high, and the new orders index eased just slightly to a healthy 60.4.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in a statement. “Coronavirus pandemic-related global issues -- worker absenteeism, short-term shutdowns due to parts shortages, employee turnover and overseas supply chain problems -- continue to impact manufacturing.”