US Manufacturing Activity Hits 10-Year Low; EIA Reports Another Big Crude Oil Draw

The airstrike that killed Iran’s top military commander on Friday grabbed most of the headlines, which is understandable since it had the biggest effects on the financial markets. The news ratcheted up geopolitical concerns by increasing worries about an energy shock on the global economy.

Other reports that seemed to take the backseat on Friday were the December ISM manufacturing index, Construction spending, ISM manufacturing prices and a report on vehicle sales. Delayed reports on U.S. crude oil inventories and natural gas storage were also released.

Manufacturing Activity Weakest in Decade

Manufacturing activity in the U.S. contracted to its lowest level in more than a decade last month even as China and the U.S. showed progress on the trade front.

The Institute for Supply Management said Friday that its manufacturing index fell in December to 47.2. That’s its lowest level since June 2009, when it hit 46.3. Economists polled by Reuters expected a reading of 49 for December. Anything below 50 represents sector contraction.

December also marked the fifth straight month of contraction for the U.S. manufacturing sector.

“Global trade remains the most significant cross-industry issue, but there are signs that several industry sectors will improve as a result of the phase-one trade agreement between the U.S. and China,” said Timothy R. Fiore, chair of the institute, in a statement.

What Weak ISM Manufacturing Data Could Mean to Big Picture

Traders are hoping the first phase of an agreement between the U.S. and China will lead to a further easing of tensions between the two economic powerhouses and that with the signing of the deal on January 15, signs of a rebound will start to emerge. There is no doubt that the weak December number was a disappointment, but the figure still remains well above levels usually associated with a recession.

U.S. Construction Spending Rises 4.1% from November 2018

In November 2019, U.S. construction spending amounted to a seasonally adjusted annual rate of 1.324 trillion, which is 4.1% above the previous year’s rate of $1.271 trillion, the Census Bureau said.

When compared to October 2019, construction spending was 0.6% above the revised estimate of $1.317 trillion.

Spending on private construction during November was at a seasonally adjusted annual rate of $985.5 billion, 0.4% above the revised October estimate of $981.1 billion, and 1.6% above a year ago.

Of that, residential construction spending was at a seasonally adjusted annual rate of $536.1 billion in November, which is 1.9% above the revised October estimate of $526.3 billion and up 2.7% from a year ago.

Crude Oil:  EIA Reports Bigger-Than-Expected Crude Inventory Drop

The Energy Information Administration (EIA) reported that U.S. crude supplies fell by 11.46 million barrels for the week-ended December 27. Traders were looking for a decrease of 3.1 million barrels.

The EIA report also showed supply increases of 3.212 million barrels for gasoline stocks and an increase of 8.776 million barrels for distillates. Traders had expected gasoline stocks to increase by 3.7 million and distillate stocks to add 3.2 million barrels. Supplies in the key Cushing, Oklahoma futures delivery hub fell by 1.449 million barrels, according to the government.

Natural Gas:  EIA Data Misses to Downside

The EIA said on Friday that domestic supplies of natural gas fell by 58 billion cubic feet for the week-ended December 27, slightly less than industry expert estimates. Traders were looking for a draw of about 65 million Bcf.

The total figure is 18% higher than natural-gas levels at this time a year ago, but 1.2% lower than the five-year average.