Portfolio

ISM manufacturing index slips in November

By Michele Maatouk

Date: Monday 02 Dec 2019

(Sharecast News) - Activity in the US manufacturing sector weakened further in November, languishing at a decade low, according to figures released on Monday by the Institute for Supply Management.
The ISM index fell to 48.1 from 48.3 in October, missing expectations for a reading of 49.2 and remaining below the 50.0 mark that separates contraction from expansion.

Timothy R. Fiore, chair of the ISM, said: "Global trade remains the most significant cross-industry issue. Among the six big industry sectors, food, beverage & tobacco products remains the strongest, while fabricated metal products is the weakest. Overall, sentiment this month is neutral regarding near-term growth."

The new orders index fell to 47.2 from 49.1 in October, while the production index printed at 49.1 in November compared to 46.2 the month before. The employment index dipped to 46.6 from 47.7 and the prices index came in at 46.7 versus 45.5 in October. The inventories index declined to 45.5 from 48.9.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "This is disappointing. The mixed bag of regional surveys for November signalled that that national ISM was unlikely to move much in either direction, but the balance of probabilities appeared to favour a modest increase. In the event, the key new orders index dipped to 47.2 from 49.1, returning to the year's low, first seen in August. Orders haven't been below this level since April 2009.

"In short, this is a soft report, and the fall in orders, if sustained, suggests the headline index could dip a bit further in December. A charitable interpretation- and one consistent with the recent improvement in China's PMIs - is that the ISM is bouncing along the bottom. We'd be surprised to see a further significant decline, but the sector is stuck in a mild recession with little prospect of a real near-term revival. This will weigh on job growth and capex over the next few months, to the point where we are not ready to rule out a further easing in January. What will the Fed do if Q4 GDP growth is only 1% or so and payroll growth has dipped to 75K? That seems like a material change to us."

Capital Economics economist Andrew Hunter said the ISM index illustrates that the manufacturing sector isn't yet out of the woods.

"The fall in the headline index came against expectations of another rise, and was driven by falls in the new orders and employment components. That was partly offset by strong rebounds in the supplier deliveries and production indices, although the latter is still consistent with manufacturing output falling at a 3% annualised pace. Manufacturing output looks set to rebound in November specifically as the General Motors strike disruption in the auto sector unwinds, but this latest ISM weakness suggests that underlying conditions in the sector remain unusually weak.

"Nevertheless, there is mounting evidence to suggest that the downturn will soon bottom out, with the alternative national Markit manufacturing PMI rising over the past few months. Moreover, there has been a tentative improvement in some of the global manufacturing surveys, particularly in China. Nonetheless, even if conditions stabilise soon, our view that the global backdrop will remain unusually weak over the next year means that we don't expect a meaningful recovery in the US manufacturing sector for some time."

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