After much of 2024 marked by contraction, there are now brighter signs emerging from the tunnel of the U.S. manufacturing sector.

Data revealed Friday from the Institute for Supply Management showed that the Manufacturing Purchasing Managers' Index rose to 49.3% in December, up from 48.4% in November and surpassing economists' expectations of 48.4%.

The outcome marks the strongest reading since April 2024 and second consecutive month of improvement in the PMI, a trend not seen since September 2023.

However, the index remains below the critical 50% threshold that separates expansion from contraction, reflecting the ninth consecutive month — and the 26 out of the last 27 — in contraction territory.

Key Manufacturing Metrics Show Encouraging Trends

While the headline PMI remains in contraction, some sub-indices suggest that momentum may be turning:

• New Orders Index: Climbed to 52.5% in December, up from 50.4% in November. This is the second straight month in expansion territory after seven months of contraction.
• Production Index: Jumped to 50.3%, up significantly from November's 46.8%, marking its return to expansion after six months of contraction.
• Prices Index: Rose from 50.3% in November to 52.5%, indicating increasing prices paid by manufacturers.
• Backlog of Orders Index: Improved from 41.8% in November to 45.9%, though still below 50%.
• Employment Index: Fell to 45.3% from November's 48.1%, reflecting continued de-staffing in the sector.

"U.S. manufacturing activity contracted again in December, but at a slower rate compared to November. Demand showed signs of improving, while output stabilized and inputs stayed accommodative," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, wrote in the report.

Fiore also highlighted that de-staffing trends may soon end, and the percentage of gross domestic product contracting in manufacturing has decreased from 66% in November to 52% in December — a sign that the slowdown is becoming less broad-based.

Market Reactions

The U.S. dollar rebounded against major currencies, supported by the improving economic data. The Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), a proxy for dollar strength, trimmed its session losses to 0.1%.

The greenback has now rallied 9% since late September, significantly outperforming the broader stock market, which is up only 3% during the same period.

The S&P 500 — as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) — initially rose but gave back gains, weighed down by higher Treasury yields.

The yield on the 30-year Treasury bond rose to 4.80%, reversing overnight declines, and the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) slipped 0.2%, holding near nine-month lows.

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