The US Purchasing Managers Index (PMI) for November was released Friday by the Institute for Supply Management (ISM), and came at a level of 46.7, a number, flat with October, and also below the key 50 mark that separates US manufacturing expansion from contraction for the 13th straight month.
The poor result varies from the strong real GDP growth of 5.2% seen in Q3, as reported in a second quarterly estimate by the Bureau of Economic Analysis also released late last week, as the economy continues to give mixed signals.
The PMI tracks closely but not exactly with the overall US economy. The November result showed the economy continued in contraction for a second month after one month of weak expansion preceded by nine months of contraction and a 30-month period of expansion before that.
A Manufacturing PMI above 48.7, over a period of time, generally indicates an expansion of the overall economy.
A similar story with the New Order Index, which remained in contraction territory with a score 48.3. That was 2.8 percentage points higher recorded in October, but still a bad sign for future US manufacturing activity.
Other numbers from ISM for the month were mostly down or below the 50 mark.
For example, the Production Index saw a reading of 48.5, a 1.9-percentage point decrease compared to October’s figure of 50.4.
The Prices Index registered 49.9, up 4.8 percentage points compared to the reading of 45.1 in October. That means companies saw a decrease in the cost of components, materials and other inputs, but at a slower rate last month. This index (below 50 = falling prices) was not that many months ago above 80, as inflation took off.
In more economic bad news, the Backlog of Orders Index registered a dismal 39.3, 2.9 percentage points lower than the October reading of 42.2, meaning the order book of most companies is shrinking, with the level still well below the 50 mark.
The Supplier Deliveries Index figure of 46.2 was 1.5 percentage points lower than the 47.7 recorded in October. That means supplier lead times are shrinking. Supplier Deliveries is the only ISM index that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases – or the reverse.
The Inventories Index increased by 1.5 percentage points but to just 44.8, indicating inventory levels at companies are decreasing.
“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. Suppliers continue to have capacity,” commented Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee.
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As always, the ISM report provides a graphic of the full PMI scores the last 12 months, which as can be seen indicates the measure has below the key 50 mark since November 2022, and it is now averaging just 47.2 over the past year.
US PMI Last 12 Months
Just three of the 18 industry US sectors tracked by the PMI reported growth in November. Those were: Food, Beverage & Tobacco Products; Non-metallic Mineral Products; and Transportation Equipment.
As always, there were some interesting comments from PMI survey respondents.
“Economy appears to be slowing dramatically. Customer orders are pushing out, and all efforts are being made to right-size inventory levels, both to mitigate carrying costs on pushed-out orders and to load up on inventory where costs are exploding, like cold-rolled steel”, said one manager in the computer & electronic products sector.
Added one respondent in the chemicals sector, “Starting to feel softening in the economy, with labor still a challenge to backfill critical roles. The 2024 forecast looks challenging, specially from a cost perspective.”
Finally, a manager in the food and beverage industry commented that “Our executives have requested that we bring down inventory levels considerably, and it has started causing customer shortages. Both finished goods, and low inventories of raw and packing materials are creating issues in fulfilling customer demand, and in some cases causing serious (production) delays.”
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