Dive Brief:
- U.S. manufacturing slumped in November for the ninth straight month on declines in new orders, supplier deliveries and employment, the Institute for Supply Management said.
- The ISM’s Manufacturing PMI fell 0.5 percentage point to 48.2%, Susan Spence, chair of the institute’s manufacturing business survey committee, said in a statement Monday. New orders sagged for the third straight month, and many survey respondents “still report softer international orders tied to tariffs and ongoing uncertainty around U.S. economic policy,” she said.
- Employment last month shrank at a faster pace than in October as 67% of survey respondents “indicated that managing headcounts is still the norm at their companies, as opposed to hiring,” Spence said. The finding added to evidence of a cooling U.S. labor market.
Dive Insight:
Some recent reports on manufacturing have revealed a brighter landscape than depicted by the ISM findings.
Factory activity in New York State unexpectedly sped up in November to the fastest pace in a year, spurred by an increase in new orders and shipments, the Federal Reserve Bank of New York said on Nov. 17.
Despite signs the U.S. labor market is softening nationwide, factory employment in New York rose slightly and the average workweek lengthened, the New York Fed said, citing a survey of companies.
S&P Global also reported that U.S. manufacturing output grew last month.
Still, “the health of the U.S. manufacturing sector gets more worrying the more you scratch under the surface,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement Monday.
“Growth in new order inflows slowed sharply, hinting at a marked weakening of demand growth,” Williamson said.
“Manufacturers are making more goods but often not finding buyers for these products,” he said, noting that “sustained, robust production growth alongside weaker than expected sales led to a worryingly steep rise in unsold inventories.”
For two straight months manufacturers have filled warehouses with unsold stock to the highest level since the compilation of data started in 2007, he said. An unplanned accumulation of stock usually presages a cutback in production.
“Profit margins are meanwhile coming under pressure from a combination of disappointing sales, stiff competition and rising input costs, the latter widely linked to tariffs,” Williamson said.
The decline in the ISM manufacturing index prompted the Atlanta Fed to forecast an annual gross domestic product growth rate of 3.9% for the third quarter. The Atlanta Fed early last month forecast an annual growth rate exceeding 4% for Q3. Manufacturing generates about 9.4% of GDP, according to the St. Louis Fed.
“It now appears to me that economic activity is not accelerating,” Fed Governor Christopher Waller said in a Nov. 17 speech.
Forecasts by private-sector economic analysts “are pointing to real GDP growth for the second half of this year that will be close to the modest first-half pace and a significant slowing from the pace of last year,” he said.
In a broad assessment of the economy, Waller said, “it is clear to me that the data are saying that there has been a greater reduction in demand than supply.” He called for a quarter-point cut in the federal funds rate at a Dec. 9-10 Fed monetary policy meeting to bolster demand and shore up the labor market.
