–ISM Manufacturing Index Unchanged at Weaker-Than-Expected 46.7 in November
–ISM’s Fiore: Sector at Lower End of Trough; Things Moving Very Slowly
–Fiore: New Orders Still Down, No Idea Where They Will Be in December
–Fiore: High Fuel Costs Are Negative as Energy Market Looks Set to Rise Again
By Max Sato
(MaceNews) – U.S. manufacturing activity was in contraction territory for the 13th straight month in November, with a key index unchanged from October, as demand remains sluggish, prompting firms to lower production and reduce headcount, data from the Institute for Supply Management released Friday showed.
Some firms used more layoffs than hiring freezes to cope with slow demand as the past rate hikes by the Federal Reserve aimed at bringing inflation down are weighing on the overall economy.
The sector index compiled by the ISM, which shows general direction, was unchanged at 46.7, after slumping 2.3 points to 46.7, rising 1.4 points to a 10-month high of 49.0 in September. It followed a 1.2-point rise to 47.6 in August, a 0.4-point rise to 46.4 in July and a 0.9-point fall to 46.0 in June. The latest figure was weaker than the median economist forecast of 47.5. It remained below 50, which indicates contraction in the sector.
The index has been on a gradual downtrend since June 2022 but it seems to have hit a bottom in June at 46.0, which was the lowest since May 2020, when the index at 43.5 was recovering from a recent low of 41.8 the previous month during the first wave of the pandemic. The all-time low is 29.4 hit in May 1980.
“Demand remains soft, and production execution is slightly down compared to October as panelists’ companies continue to manage outputs, material inputs and — more aggressively — labor costs,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Suppliers continue to have capacity.”
“Attrition, freezes and layoffs to reduce head counts increased during the period (November), with layoffs and attrition the primary measures,” Fiore said in the latest report. “Panelists’ comments were equally split between companies hiring and others reducing their labor forces — a first since such comments have been tracked.”
He told reporters that the U.S. manufacturing sector is at the lower end of a trough, saying, “Things are moving very slowly.” High fuels costs are also a negative factor as the energy market appears set to be rising again, he said.
“Starting to feel softening in the economy, with labor still a challenge to backfill critical roles,” a chemical producer told the ISM. “The 2024 forecast looks challenging, specially from a cost perspective.”
Last month Fiore said the manufacturing sector remained in a trough after having hit a bottom of around 46 in the ISM index, predicting that it is unlikely to slip back to 45 or below. But he also said at the time that he was particularly “concerned” about the weakness in new orders, with the subindex for that category down at a five-month low of 45.5 in October. It rose to 48.3 in November but was still in contraction for 15 months.
The rise in the new orders index to 48.3 is “positive” and not surprising but Fiore also said on Friday that it wouldn’t have surprised him if it had fallen to 47.0, either.
Looking ahead, Fiore told reporters, “I really don’t have any idea where new orders will be next month. I don’t expect it to be in the tank and I don’t expect it to be growing dramatically.”
New orders have been declining for 15 months while backlog orders are down for 14 months, which means companies are working off their backlog orders for over a year. “But at some point, that backlog runs out,” Fiore said.
While supply chains have recovered from the pandemic-caused breakdown, some companies pointed to the dampening effects of labor strikes.
“Nearly all microchip supply issues have been resolved, finally bringing an end to the three-year chip shortage,” a transport equipment maker said told the ISM. “Supply chain issues continue in several areas, resulting from difficulties during the United Auto Workers (UAW) strike.”
A fabricated metal producer said its automotive sales were still impacted by the UAW strike. “Still waiting for orders to come in, and we also need to work down inventory levels that increased during the strike period. This will most likely happen in December,” it said.
To assess the overall economic climate, the latest ISM survey indicates the overall economy contracted for a second month in a row after one month of weak expansion preceded by nine months of contraction and 30 months of expansion from June 2020 to November 2022. The ISM’s manufacturing PMI reading above 48.7, over time, generally indicates an expansion of the U.S. economy.
The November survey showed that 65% of manufacturing gross domestic product GDP contracted, down from 75% in October and 71% in September but up from 62% in August.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index contracted for the 15th consecutive month, staying below the neutral line of 50. It rose 2.8 percentage points to 48.3 in November after plunging 3.7 points to 45.5 in October, rising 2.4 points to 49.2 in September (the highest since 50.4 in August 2022) and dipping 0.5 point to 46.8 in August. October’s 45.5 is the lowest since May, when it fell 3.1 points to a four-month low of 42.6.
The production index reading of 48.5 in November is a 1.9-point decrease from 50.4 in October, when it fell 2.1 points. It rose 2.5 points to 52.5 in September from 50.0 in August after rising 1.6 points to 48.3 in July. The index slumped 4.4 points to 46.7 in June, hitting the lowest since 34.2 in May 2020 at the initial phase of the pandemic.
The employment index dipped 1.0 point to a four-month low of 45.8 in November after slipping back to contraction in October, when it fell 4.4 points to 46.8, rising 2.7 points to 51.2 in September, climbing 4.1 points to 48.5 in August and slipping to a three-year low of 44.4 in July. Previously, the index rose 1.2 points to 51.4 in May after popping into expansion territory for the first time in four months in April at 50.2. An employment index above 50.4, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.
The delivery performance of suppliers to manufacturing organizations was faster for the 14th straight month amid improving supply chains. The supplier deliveries index at 46.2 is a 1.5-point fall from 47.7 in October, when it rose 1.3 points from 46.4 in September. The May figure of 43.5 is the lowest since 43.2 in March 2009. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
Among other subindexes, the customers’ inventories index rose 2.2 points to 50.8 in November after rising 1.5 points to 48.6 in October. The index above 50 means the level is now “too high,” following five months of being “too low.” The index reading “moved into expansion, toward the upper end of ‘about right’ territory, not accommodative for future production,” Fiore said. The “too high” condition was last seen in May 2023, when it edged up 0.1 point to 51.4. That was the highest in more than six years since September 2016, when it registered 52.5. The all-time high is 56.0 hit in January 2001.
The prices index indicated decreases for the seventh consecutive month. It rose 4.8 points to a seven-month high of 49.9 in November, but just under the neutral line, after rising 1.3 points to 45.1 in October, falling 4.6 points to 43.8 in September, rising 5.8 points to 48.4 in August, edging up 0.8 point to 42.6 in July and falling 2.4 points to a six-month low of 41.8 in June. The index has stayed below the key 50 level since it slumped 9.0 points to 44.2 in May from 53.2 in April.
The backlog orders index was in contraction for 14 months, falling 2.9 points to a five-month low of 39.3 in November after falling 0.2 point to 42.2 in October, slipping 1.7 points to 42.4 in September, rising 1.3 points to 44.1 in August and climbing 4.1 points to 42.8 in July. It followed a 1.2-point gain to 38.7 in June and a 5.6-point drop to 37.5 in May, which is the lowest since the Great Recession (33.6 in February 2009).
The new export orders index was in contraction for the sixth straight month. It fell 3.4 points to 46.0 in November after rising 2.0 points to 49.4 in October, rising 0.9 point to 47.4 in September, edging up 0.3 point to 46.5 in August and falling 1.1 points to 46.2 in July, slipping 2.7 points to 47.3 in June and edging up 0.2 point to the neutral level of 50.0 in May, which was preceded by nine straight months in contraction territory and 25 months of expansion from July 2020 to July 2022.
The manufacturing sector is in the sixth contracting phase in the past 20 years. Previously, the ISM manufacturing PMI posted contraction just before the pandemic hit the global economy, from August to December 2019, and from March to May 2020. The deepest slump in the past two decades was recorded from September 2008 until July 2009 (the bottom was 34.5 in December 2008) triggered by the U.S. credit crisis.