Manufacturing sector returns to contraction as employment and orders fall

The November Institute for Supply Management PMI report found the manufacturing industry contracted for a ninth straight month as the topline figure fell by 0.5 points to 48.2%. Accelerating contraction in New Orders and Employment indexes offset slight growth in the production index. According to the Susan Spence, chair of the Manufacturing Business Survey Committee, the decline shows manufacturing activity in the United States continuing to decline as areas in contraction surpass industry metrics experiencing growth.

The headline figure of 48.2% is a composite of three primary indexes measuring new orders, employment, and production. While production rose by 3.2 points in November to a total of 51.4%, moving into growth territory after contracting, the new orders and employment indexes both fell 2 points to land at 47.4% and 44.0%, respectively.

In other metrics, supplier deliveries entered growth territory, as suppliers with less to delivery were able to deliver goods more rapidly. The customer inventories and prices indexes both rose for a fourteenth straight month, the inventories metrics showing a slowing in customer inventory contraction and accelerating price increases, respectively. Order backlogs continued to contract for a 38^th straight month. Exports and imports improved but remained in contraction territory: The new export orders and imports indexes rose by 1.7 to 46.2% and by 3.5 to 48.9%, respectively.

In a statement accompanying the report, Spence noted that month-to-month changes in each month can be seen as manufacturers responding in real time to changing conditions: After August’s PMI report showed a rise in new orders, the subsequent September PMI report showed improving production, and a rise in October’s backlog of orders index corresponded with November’s rising production.

A selection of anonymized respondent comments provided by ISM reflected increased orders, more permanent changes due to tariff policies, layoffs, fluctuating prices, and difficult long-term decision making in the face of uncertainty and confusion. An anonymous executive in the food, beverage, or tobacco products industries noted that the recent government shutdown impacted the company’s ability to access government agricultural data.

In the ISM’s tracker for commodity prices, aluminum notched another month of increasing in price, which it has for a full two years now. Electrical components and electronic components were both up in price and in short supply, while Freight packing materials and gasoline prices fell.

What people are saying

“In November, U.S. manufacturing activity contracted at a faster rate, with pullbacks in supplier deliveries, new orders and employment leading to the 0.5-percentage point decrease of the Manufacturing PMI,” said Susan Spence, MBA, Chair of the Institute for Supply Management’s Manufacturing Business Survey Committee. “Continuing a recent trend, a previous month’s improvement in one index was evident in another gauge. After new orders strengthened in August, production improved in September. An improvement in the Backlog of Orders Index in October transferred to the Production Index, which expanded in November (as backlogs pulled back). However, the New Orders and Employment indexes both dipped 2 percentage points, underscoring the ongoing economic uncertainty.

“We are starting to institute more permanent changes due to the tariff environment,” said an anonymous Transportation Equipment executive. “This includes reduction of staff, new guidance to shareholders, and development of additional offshore manufacturing that would have otherwise been for U.S. export.”

“Trade confusion. At any given point, trade with our international partners is clouded and difficult. Suppliers are finding more and more errors when attempting to export to the U.S. — before I even have the opportunity to import,” reported an anonymous Electrical Equipment executive. “Freight organizations are also having difficulties overseas, contending with changing regulations and uncertainty. Conditions are more trying than during the coronavirus pandemic in terms of supply chain uncertainty.”