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First Cut: ISM Manufacturing in November in contraction for fourth straight month

The ISM Manufacturing Index was at 48.1 in November, little changed from the 48.3 in October. Survey respondents overall seemed to feel that conditions were not fundamentally different and that slow conditions in the global economy and uncertain trade policy remained the main risks to the outlook for the factory sector. Below the headline, the index components showed more movement.

The index for new orders fell to 47.2 in November from 49.1 in October, but was essentially on trend with the four months of contraction for manufacturing. Production was up to 49.1 in November after 46.2 in October, reflecting the uptick in orders in the prior month. Unless and until new orders decisively pick up, the recession in the factory sector isn’t going to disappear. It may not drag the US economy into a downturn, but it will be a drag on growth.

Backing up the weakness in new orders, the export orders index fell to 47.9 in November after 50.4 in October. The underlying trend actually seems to have picked up a bit after a steeper pace of contraction in August and September. However, this looks to be uneven month-to-month. The index for imports rose to 48.3 after 45.3, but hasn’t seen expansion in five months. Some of this is due to caution about bringing in goods with higher tariffs, but most is likely simply that activity is slow and imported goods are less needed.

Supplier delivery times continued to hover around neutral at 52.0 in November after 49.5 in October. There are few delays from vendors along the supply chains and goods seem to be moving neither too fast nor too slow.  The inventory index fell to 45.5 in November after 48.9 in October and was the lowest since 45.0 in May 2016. Manufacturers are being careful to avoid any inventory accumulation during the slowdown in conditions.

The index for employment dipped to 46.6 in November after 47.7 in October and remained in line with recent months. Regional surveys have reported a mixed performance for hiring in the factory sector. Some areas are still adding employees if they can find skilled labor. However, at the national level, hiring is not advancing.

The prices paid index rose to 46.7 in November after 45.5 in October. Higher energy costs brought the pace up somewhat, but there is little upward price pressures overall.

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