- Although December’s manufacturing PMI of 57.9 fell slightly from the previous month, the decline partly reflected the clearing of some production backlogs. The survey showed a pick-up in output growth.
- Global restrictions related to the Omicron variant could slow the rate at which strains on supply chains are reduced. But component shortages and cost pressures faced by manufacturers should ease convincingly later this year.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“December’s manufacturing PMI of 57.9 was slightly down on November’s three-month high of 58.1. But just as the index had benefitted throughout most of last year by supply disruption and an associated lengthening of delivery times, an easing in pressure on supply chains in December’s survey weighed on the PMI. As a result, looking beyond the slight decline in the headline index, the IHS Markit/CIPS survey’s measure of manufacturing output saw growth pick up in December to the strongest in four months, partly reflecting manufacturers working to process unfinished orders.
“Some positive supply-side developments went alongside growth in input costs falling back from November’s record high, although growth in factory gate prices accelerated to a new survey peak. Whether these patterns continue has been made more uncertain by global restrictions put in place in response to the spread of the more transmissible Omicron COVID-19 variant. These restrictions are likely to slow the rate at which pressure on supply chains is reduced.
“However, if, as the EY ITEM Club expects, bottlenecks meaningfully ease during the second half of 2022, strong orders data and elevated backlogs should set manufacturers up for a decent 2022, even as consumer spending patterns continue their, currently interrupted, rotation back from goods to services.”