ISM November manufacturing report is up nearly 2 points, manufacturing growth remains intact

With its primary index—the PMI—showing signs of leveling out in recent months, the Institute for Supply Management’s Manufacturing (ISM) Report on Business increased nearly two full percentage points in November to extend the growth streak for economic activity in the manufacturing sector to 28 straight months and the overall economy showed growth for the 30th consecutive month.

The PMI rose 1.9 percent in November to 52.7 percent, topping October, September, and August, which hit 50.8, 51.6, and 50.6, respectively. While the October gain is positive, this PMI reading—and those in previous months—pale when compared to the first four months of 2011, when the PMI was routinely north of 60. The ISM says that any reading 50 or higher is a sign of economic growth.

For the report’s main indicators, New Orders were up 4.3 percent at 56.7, and Production climbed 6.5 percent at 56.6. Employment dipped 1.7 percent to 51.8.

“Being up nearly two points is a nice place to be,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “It shows the continuing resilience of this category and the promise of more to come. New Orders were particularly strong, as were other key indicators.”

He added that Inventories up 1.6 percent at 48.3 were in a good place, as were Prices, which were up 4.0 percent at 45.0 but still below 50, indicating that lower prices are in manufacturers’ favor for the second straight month and decreasing at a slower rate than October, which fell 15 percent from September. Lower prices help manufacturers improve their margins, which provide welcome relief, as they will share this pricing advantage to a degree with their customers to generate more new orders.

These positive signs, said Holcomb provide good relief, which flows all the way through the supply chain and promises to continue to spawn new orders. Export growth was up 2.0 percent at 52.0 was cited by Holcomb as another good sign.

In comments within the report from ISM member companies, there was a fairly high level of optimism regarding economic growth and fewer comments about what is happening in Washington, D.C. regarding things like economic policy and the potential for a double-dip recession, which was higher in recent months.

“Cautious optimism…is the right term to describe what is happening, and it bodes well for the next few months, I think,” said Holcomb.

Looking at other key metrics in the report, Supplier Deliveries dipped 1.4 percent to 49.9. Holcomb said Supplier Deliveries coming in above 50 indicates slower deliveries are occurring, which is viewed as a positive, because it suggests suppliers are labored and burdened and have a lot of orders—which is why they are slower in delivery. In November, it was below 50, which means supplier deliveries have caught up.

With various signs of positivity in manufacturing, there are things to keep an eye on going forward. One, said Holcomb, is prices, which he said are likely to decrease or moderately increase over the next few months and be a positive for manufacturing.

But New Orders are even more important as they are filling up at a steady pace and provides a sense of continued growth and direction based on what is happening on an anecdotal level, too, he said.

Even though manufacturing is not growing at the swift rate it did during the first four months of the year, things appear to be better than they were just a few months ago.

“The early growth was not sustainable and subsequent notions of a slowdown seem to have lessened,” said Holcomb. “There is continued resilience here in the face of what is going on in Europe, China, as well on a domestic and political basis. We are bombarded daily by headlines about what is going in Europe, but then something happens to correct it or put it on the defensive. Manufacturing believes in itself and believing things are going to get corrected and the industry is staying the course.”