The US Purchasing Managers Index for November was released last week by the Institute for Supply Management, and it came with some warning signals for the overall economy.
Supply Chain Digest Says...
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| A manager in the plastics industry noted that ““Looking into December and the first quarter of 2023, business is softening as uncertain economic conditions lie ahead.” |
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With a score of 49.0, it means US manufacturing has fallen below the key 50 mark that separates expansion from contraction, after flirting with it in October, when the index was at 50.2.
It was also the first time since May 2020 that the index was below the 50 mark, ending 29 months of expansion. (See chart of the PMI scores for the last 12 months below; the average score over that period was a strong 54.4, but has been trending down for most of 2022).
Perhaps more worrisome, the New Orders Index remained in contraction territory at 47.2, 2 percentage points lower than the 49.2 recorded in October, in a negative sign for future US manufacturing activity.
Other measures in the November report were also weak. For example, the Production Index reading of 51.5 was a 0.8-percentage point decrease compared to October’s figure of 52.3, though still in positive territory.
The Prices Index registered 43, down 3.6 percentage points compared to the October figure of 46. This put index, which tracks whether costs of materials, components and other inputs are rising or falling, at lowest reading since May 2020 (40.8). Just a few months ago, this index was above 80, as inflation took off.
The Backlog of Orders Index registered just 40.0, 5.3 percentage points lower than the October reading of 45.3, and another bad sign for US manufacturing in coming months.
US PMI Last 12 Months
Source: ISM
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Just six of the US 18 industry sectors tracked by the PMI reported growth in November, in the following order: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Miscellaneous Manufacturing; Petroleum & Coal Products; and Transportation Equipment. The other 12 sectors contracted during the month.
As always, there were some interesting comments from PMI survey respondents. For example, one manager in the computer and electronics sector noted that “Customer demand is softening, yet suppliers are maintaining high prices and record profits. Pushing for cost reductions based on market evidence has been surprisingly successful.”
Another manager in the machiney sector said ““General economic uncertainty has created a slowdown in orders as we approach the end of the year, and many of our key customers are reducing their capital expenditures spend.”
Finally, a manager in the plastics industry noted that ““Looking into December and the first quarter of 2023, business is softening as uncertain economic conditions lie ahead.”
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