The IHS Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) fell from 55.3 in November to a 15-month low of 53.8 in December, indicating continued but weakening expansion. Although backlogs continued to rise and inflationary pressures eased, the rate of job creation fell to an 18-month low and business optimism dropped to its lowest level since October 2016. While some survey respondents indicated a drop in client demand for new orders over the course of the year, others cited an upturn driven by newly acquired clients, and export orders increased for the fifth consecutive month. Additional concerns that weighed down client optimism included low employee retention rates and increasing cost burdens due to raw material stockpiling, electronic component shortages and the impact of tariffs.

The Institute for Supply Management’s (ISM) Manufacturing Index also reflected a slower rate of growth, with a drop to 54.1% in December from the previous month’s 59.3% rate, and its lowest reading since November 2016. As with the PMI report, customer demand for new orders softened while demand for new export orders grew more quickly. Respondents to the ISM survey indicated concerns regarding tariffs and the slowing pace of new orders, along with caution in making plans for future business spending due to uncertainty about market and business conditions in the the coming year.

There were 312,000 jobs created in December, up from an upwardly revised 176,000 jobs created in November, but due to a +0.2% increase in the workforce participation rate to 63.1% the unemployment rate rose to 3.9% (+0.2%). Jobs were added in health care (+50,000), restaurants (+41,000), construction (+38,-000), manufacturing (+32,000), and retail (+24,000). Average hourly earnings rose +0.4%, up from +0.2% in the previous month, with year over year earnings growing +3.2% (+0.1%). The more expansive U-6 measure of unemployment, which includes workers marginally attached to the labor force, remained steady at 7.6%.