U.S. manufacturing down, job creation roars in December
The key U.S. manufacturing sector hit a two-year low in December amid a worrying slump in demand and weak exports, but hiring by private U.S. companies surged unexpectedly in December, two separate surveys showed on Thursday.
While the Institute for Supply Management's monthly report showed the U.S. industry was still expanding, analysts said the monthly slowdown showed activity had unmistakably fallen a notch below prior trends.
Wall Street has tumbled in recent months as investors begin to fear 2019 will see weaker growth or even a recession and the news accelerated a sell-off on major stock market indices on Thursday.
ISM's manufacturing index fell to 54.1 points, down 5.2 points from November and the lowest level since November 2016. Economists had called for a result of 57.8 and any level above 50 indicates growth.
The survey showed slowdowns in production, deliveries and employment. But the largest dip was in orders, which fell 11 points from November and dragged the overall index lower.
"I think generally there's an overall softening in the global market and we're being impacted by the export piece of it," Timothy Fiore, chairman of the ISM manufacturing survey committee, told reporters.
Fiore said survey respondents noted slowing sales to China and Europe, which exchanged tit-for-tat tariffs with Washington in 2018.
Six of 18 industries contracted, including fabricated metals, a sector hit-hard by the U.S. President Donald Trump's trade war.
Another survey from the payrolls firm ADP showed that hiring by private U.S. companies rose to its highest level in nearly two years as employers beefed up staffing levels in the holiday period.
The private sector added 271,000 net new positions for the month, soaring above expectations of only 170,000 new hires.
November's result was revised downward, however, to 157,000, a dip of 22,000.
The survey came a day before the federal government is due to release its more closely-watched monthly report for December. However, the two are frequently out of step.
Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said holiday hiring had jumped in trade, leisure and hospitality.
"Small businesses also experienced their strongest month of job growth all year," he said in a statement.
The ADP report is derived from actual payroll data and covers nearly 24 million workers.
Ian Shepherdson of Pantheon Macroeconomics said calling the result "startling would be something of an understatement" – noting that the survey had previously undershot forecasts for 18 months.
"We don't know what prompted the sudden closing of the gap in December," he said in a client note, adding that data might be compensating after months of hurricanes, cold weather and California wildfires – "or it might be noise."
The rosy numbers failed to lift the gloom on Wall Street, with the three major indices closing down sharply after iPhone maker Apple cut sales forecasts due to weakness in China and survey data showed slowing the U.S. manufacturing activity.
Thursday's numbers nevertheless suggested the jobless rate, currently at 3.7 percent, could continue to fall, adding to pressure on the central bank to continue tightening.