Oil Tanks Further on Depressing U.S. Manufacturing Data

Oil prices continued to plummet on Wednesday while gold was enjoying its best time in six months with the release of U.S. manufacturing data for December, which appeared to show a shrinking American economy. 

The Institute for Supply Management Manufacturing Purchasing Manager Index (ISM PMI) came in at 48.4 in December, or 0.6% lower than November’s reading. Anything below 50 indicated contraction. The 48.4 PMI is equal to a 0.1% drop in real gross domestic product on an annualized basis, according to the ISM PMI. 

“Regarding the overall economy, this figure indicates contraction after 30 straight months of expansion,” the ISM PMI said in a press release, noting that the December figure is the lowest since May 2020, when it registered 43.5%. 

This does not yet mean recession, which is generally defined as two straight quarters of declining GDP. 

Likewise, the New Orders Index came in at 45.2%, 2% lower than in November, while the Production Index came in 3% points lower than November, at 48.5%. The Prices Index came in at 39.4%, down 3.6% from November and the lowest reading since April 2020, during the height of the COVID-19 pandemic. The Supplier Deliveries Index came in at 45.1%, again lower than November, and the lowest since March 2009. Employment was an outlier, returning to expansion territory at 51.4%, reversing November’s contraction. The Inventories Index also came in higher than November, but the New Export Orders Index shed 2.2% month-on-month, while Imports were also in contraction. 

One big takeaway from the PMI report was oil and gas industry performance, with ISM PMI Chair Timothy Fiore noting that "Of the six biggest manufacturing industries, one — Petroleum & Coal Products — registered moderate growth in December.

Oil prices were downwardly mobile after the release of the PMI data, with Brent crude trading at $78.35 per barrel at 12:03 p.m. EST, down 4.57% on the day, and WTI trading at $73.37, down 4.63%. 

Ahead of the report, gold prices were in full recovery swing, with gold bugs anticipating a good year and prices surging to a 6-month high. 

By Charles Kennedy for Oilprice.com

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