According to a report released today by the Institute for Supply Management, the U.S. manufacturing sector continued to expand in December—but at a slower pace than economists had expected.

In December the manufacturing index was 54.2%, compared with 58.1% in November and 59.1% in October. Any reading above 50% indicates growth.

Specifically, new orders and production are continuing to expand at a slower rate. The good news for the trucking industry is that manufacturing inventories are contracting at an accelerating rate, which will be a boon for freight movement. Customer inventories were also “too low,” but trending toward supply/demand equilibrium. Manufacturers’ order backlogs shrunk in December, which bucked a growth trend.

Despite the significant month-to-month drop off in the index, ISM was optimistic by the December data, calling 2005 an “excellent year” that averaged 55.5%.

“In December, we saw a decline in the rate of growth of both new orders and production, but both indexes are at levels that support economic growth,” said Norbert J. Ore, ISM chair of the Manufacturing Business Survey Committee. “We saw a significant slowing in the upward pricing spiral that has been a source of continuing concern for manufacturers. A strong fourth quarter should carry significant momentum into 2006.”

Yesterday, the National Assn. of Credit Management released a discouraging December report on the manufacturing sector. NACM’s manufacturing index for the month was down 2.1% from last year.

According to the NACM survey of credit managers, dollar collections and dollar amount beyond terms fell, suggesting tightness on cash flow. “Higher energy costs, interest rates, and labor rates are likely culprits,” said Dan North, chief economist with credit insurance firm Euler Hermes ACI. “November’s drop in fuel price may help ease the situation next month.”

To view the ISM report, go to www.ism.ws/ISMReport/ROB012006.cfm.

To view the NACM report, go to www.nacm.org/resource/press_release/CMI_current.shtml.