5 Stocks To Ride Out The Contraction In Manufacturing Sector

 | Jan 07, 2020 07:45AM ET

The manufacturing sector continues to bear the brunt of the protracted U.S.- China trade war. Per the Institute for Supply Management’s latest report, the U.S Purchasing Managers’ Index (PMI) declined to 47.2% in December 2019, contracting for the fifth consecutive month. This marked the lowest PMI reading since 46.3% in June 2009 — the last month of the Great Recession.

The PMI reading had been showing signs of deceleration since April last year, but remained above 50. Notably, a reading above 50 denotes expansion in the manufacturing sector and below 50 indicates contractions. However in August, the index fell to 49.1% – marking an end to 35 consecutive months of expansion. Overall in 2019, the PMI has averaged 51.2%, ranging from a low of 47.2% (December) to a high of 56.6% (January).

In December 2019, only three of the 18 manufacturing industries reported growth. New Orders Index registered 46.8% in December, its lowest reading since 46% in April 2009. Production Index came in at 43.2% in December, decelerating from the 49.1% in November. This was the index’s worst performance since April 2009, when it stood at 36.7%. Employment Index registered 45.1% in December, down from 46.6% in November. This marked the index’s lowest reading since 44.6% in January 2016. The new orders index, production index and employment have all contracted for five consecutive months in December.