WASHINGTON Reuters -- U.S. manufacturing slowed in December due to some cooling of demand for goods, but supply constraints are starting to relax and prices paid for inputs by factories fell by the most since early 2020, when the pandemic disrupted economic activity.
The Institute for Supply Management ISM said on Tuesday that its index of factory activity fell to 58.7 last month. That was the lowest reading since January, and followed by 61.1 in November.
A reading above 50 indicates an expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had predicted the index would fall to 60.1.
The ISM survey's supplier deliveries declined to a reading of 64.9 from 72.2 in November. A reading above 50% indicates slower deliveries to factories.
Raw materials have been in short supply as global economies rebounded from the COVID-19 pandemic. The shift in demand to goods from service early in the pandemic has exacerbated shortages. Millions of workers needed to make and move raw materials are sidelined.
The signs of improvement in supply chains suggest that inflation at the factory gate could soon begin to subside.
The lowest level since November 2020, from 82.4 in November, was the lowest level since November 2020, as manufacturers' prices fell to 68.2 last month. The drop was the biggest since March 2020, when mandatory closures of businesses were enforced to slow down the first wave of coronaviruses.
This supports the Federal Reserve's long-held view that the current period of high inflation was transitory. Inflation is well above the U.S. central bank's flexible 2% target.
The new orders sub-index of the ISM fell to 60.4 from 61.5 in November. With customer inventories still depressed, the slowdown in new order growth is likely to be limited or temporary.
Factories hired more workers. Manufacturing employment rose to an eight-month high. Along with very low first-time applications for unemployment benefits, this supports the view that job growth accelerated in December.
Non-farm payrolls rose by 400,000 jobs in December, after rising 210,000 in November according to a preliminary Reuters survey of economists. The Labor Department is expected to publish December's employment report on Friday.