December 2, 2019 Reading Time: 2 minutes

The Institute for Supply Management’s manufacturing PMI composite index remained below the neutral 50 level for the fourth consecutive month in November, falling to 48.1 from 48.3 in October (see top chart). For this index, 50 is neutral, with readings above 50 suggesting expansion and readings below 50 suggesting contraction in manufacturing. Historically, readings above 42.9 have suggested expansion of the overall economy. The November result is the 127th consecutive month above 42.9 but the fourth month below 50.

Among the key components of the manufacturing index, the production index was 49.1 in November, up from 46.2 in October, suggesting manufacturing output slowed for a fourth month but the pace of decline decelerated (see bottom chart). For November, just seven industries in the manufacturing survey reported growth while 11 reported contraction.

The manufacturing new-orders index came in at 47.2, down from 49.1 in October (see top chart). The index has posted four consecutive months below 50 for the first time since the last recession. Five industries reported growth in new orders in November versus 12 industries with declining new orders.

The new-export-orders index, a separate index that measures only orders for export, was 47.9 in November, down from 50.4 in October. This index had fallen as low as 41 in September and has been below 50 in five of the past eight months. The weak results are consistent with slowing global economic activity and deteriorating trade relations.

The manufacturing employment index decreased to 46.6 in November from 47.7 in October. The employment index has also posted four consecutive months below neutral. The national employment report from the Bureau of Labor Statistics is due out on Friday, December 6. Consensus is for a 36,000 increase following a 36,000 decrease in October, mostly due to the strike at General Motors.

Supplier deliveries, a measure of delivery times for suppliers to manufacturers, came in at 52.0, up from 49.5 in October. It suggests suppliers are extending delivery times of supplies to manufacturers. October was the first reading below 50 since February 2016.

Backlogs of orders, prices and imports all showed readings below the neutral 50 level in November, with backlogs at 43.0, prices at 46.7, and imports at 48.3.

Today’s report from the Institute of Supply Management suggests that the manufacturing sector continued to contract in November. According to Timothy R. Fiore, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee, comments from the survey participants suggest that “Overall, sentiment this month is neutral regarding near-term growth.” Furthermore, “Global trade remains the most significant cross-industry issue.”

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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