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On the radar: Five District Bank surveys of manufacturing for November don’t suggest relief for the factory sector

With all five District Bank surveys for manufacturing reported, the outlook for the November ISM Manufacturing Index remains mired in recession for at least another month after three months below the 50-mark. The recent readings are only just below that and are indicative of weakness in manufacturing, but not necessarily consistent with broader recessionary conditions for the economy. It takes a reading of about 45.0 for the ISM Manufacturing Index to signal outright recession. Right now, the factory sector is laboring under weak new orders, diminishing order backlogs, and scaled back production. Delivery times are generally running neither too fast nor too slow but deserve watching to see if the pace starts to show goods are moving in line with a downturn in the economy. Inventory levels are getting adjusted quickly in response to sluggish conditions and will be monitored to ensure stocks don’t rise more than necessary. Employment has been surprisingly firm in spite of slower conditions as manufacturers are still willing to hire skilled labor where they can find it.

The five District Bank surveys’ headline indexes vary in their correlation to the ISM Manufacturing Index. Most have at least a solid correlation, with the best being the Philadelphia Fed’s general business conditions index and the Richmond Fed’s composite manufacturing index.

The indexes from the New York, Philadelphia, and Dallas Feds are diffusion indexes that reflect sentiment as reported by survey respondents. The Richmond and Kansas City Fed indexes are composites derived from survey components.

Surveys were mixed in their reports for November. The New York general business activity index fell 1.1 points to 2.9 in November and the Richmond report had a decrease of 9 points to -1. The Philadelphia index was up 4.8 points to 10.4 while the Dallas Fed’s general business sentiment index was up 3.8 points to -1.3. The Kansas City measure was unchanged at -3.

On net, the only report that suggest conditions were more than narrowly expansionary was the Philadelphia Manufacturing Business Outlook and that we would read with caution. The details in the report actually suggested that November was weaker than October.

A look at the ISM equivalent indexes for the regions – calculated from the five components most like those in the ISM Manufacturing Index – reflects softening conditions in four out of the five regions. Kansas City is the only equivalent to increase and that is still below neutral for a fifth month in a row. Manufacturing might get a nudge up via new orders in November due to the conclusion of the strike at GM and some rebound in orders and production. However, it is likely to be a one-off in an otherwise gloomy picture. I would forecast the ISM Manufacturing Index at 49.0 for November.

With all five District Bank surveys for manufacturing reported, the outlook for the November ISM Manufacturing Index remains mired in recession for at least another month after three months below the 50-mark. The recent readings are only just below that and are indicative of weakness in manufacturing, but not necessarily consistent with broader recessionary conditions for the economy. It takes a reading of about 45.0 for the ISM Manufacturing Index to signal outright recession. Right now, the factory sector is laboring under weak new orders, diminishing order backlogs, and scaled back production. Delivery times are generally running neither too fast nor too slow but deserve watching to see if the pace starts to show goods are moving in line with a downturn in the economy. Inventory levels are getting adjusted quickly in response to sluggish conditions and will be monitored to ensure stocks don’t rise more than necessary. Employment has been surprisingly firm in spite of slower conditions as manufacturers are still willing to hire skilled labor where they can find it.

The five District Bank surveys’ headline indexes vary in their correlation to the ISM Manufacturing Index. Most have at least a solid correlation, with the best being the Philadelphia Fed’s general business conditions index and the Richmond Fed’s composite manufacturing index.

The indexes from the New York, Philadelphia, and Dallas Feds are diffusion indexes that reflect sentiment as reported by survey respondents. The Richmond and Kansas City Fed indexes are composites derived from survey components.

Surveys were mixed in their reports for November. The New York general business activity index fell 1.1 points to 2.9 in November and the Richmond report had a decrease of 9 points to -1. The Philadelphia index was up 4.8 points to 10.4 while the Dallas Fed’s general business sentiment index was up 3.8 points to -1.3. The Kansas City measure was unchanged at -3.

On net, the only report that suggest conditions were more than narrowly expansionary was the Philadelphia Manufacturing Business Outlook and that we would read with caution. The details in the report actually suggested that November was weaker than October.

A look at the ISM equivalent indexes for the regions – calculated from the five components most like those in the ISM Manufacturing Index – reflects softening conditions in four out of the five regions. Kansas City is the only equivalent to increase and that is still below neutral for a fifth month in a row. Manufacturing might get a nudge up via new orders in November due to the conclusion of the strike at GM and some rebound in orders and production. However, it is likely to be a one-off in an otherwise gloomy picture. I would forecast the ISM Manufacturing Index at 49.0 for November.

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