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ISM’s manufacturing data dips in November for the fourth time in six months

December 03, 2012

Concerns over the Fiscal Cliff are front and center when addressing concerns about the United States economy, and today’s November Manufacturing Report on Business from the Institute for Supply Management (ISM) was further proof of that.

The ISM reported that manufacturing output dipped for the fourth time in six months in November, following two months of growth in September and October, which was preceded by declines from July through August.

The PMI, the index used by the ISM to measure manufacturing activity, was 49.5 in November, which was down 2.2 percent from October’s 51.7. This represented the lowest level for the PMI since July 2009, when it dropped to 49.2. A reading of 50 or higher indicates growth is occurring. Economic activity in the manufacturing sector had expanded for 34 straight months prior to June’s contraction and overall economic activity has expanded for 42 straight months. November’s PMI was 2.4 percent below the 12-month average of 51.9 and 1.6 percent below the 6-month average of 50.3.

Key metrics of the report were more down than up.

New Orders, which often are referred to as the ‘engine’ which drives manufacturing, dropped 3.9 percent to 50.3, which leaves it in growth territory despite the dip and they are up for the third straight month—in terms of overall growth—following three months of contraction. And Production was up 1.3 percent to 53.7, while Employment fell 3.7 percent to 48.4.

“It seems like the Fiscal Cliff is the big worry right now,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “People just are not sure where that is going to come out, and they are fearful that if it translates into more taxes and big spending cuts that it will be a problem for them for expansion and for new orders from customers and consumers.”

In recent months, with the PMI at, above, or below the benchmark of 50, Holcomb said it reflects how manufacturing has been moving sideways, and that was highlighted in the ISM member respondents’ comments in the report.

One of the comments from a chemical products’ manufacturer explained how global economic uncertainty seems to be a constant, which is not making things worse but at the same time it is also not making things better from a demand standpoint.

Limited growth on the New Orders side also remains a concern, too, he said, with the sentiment suggesting they could slide further down in the future if the Fiscal Cliff situation is not resolved in a particular way.

Looking at Production’s modest growth, Holcomb said that it was separate from New Orders and had more to do with eating into the Backlog of Orders, which was at 41.0, and down 0.5 percent from October, and at its lowest levels since April 2009.

“We definitely need more New Orders to keep manufacturing moving forward,” said Holcomb.

On the Employment front, the ISM had seen 37 months of growth, prior to November’s nearly 4 percent drop, which is the lowest since September 2009. This directly shows how manufacturing is pulling back its investment in employment and in inventories, which translates into prudent fiscal management.

November Inventories fell 5.0 percent to 45.0, which is a level that the ISM considers as too low.

“This is a managed pullback on inventories by manufacturing to control costs and not get caught with too much inventory, because of the uncertainty of new orders going forward,” said Holcomb. “It is the position they have managed themselves to as opposed to something which just sort of happens.”

Customer Inventories slumped 6.5 percent to 42.5 from October to November. It would normally reflect good news, as it would suggest manufacturing customers need to buy more goods to fill their shelves, but Holcomb said it has more to do with them lowering inventories to control costs, given the high levels of economic uncertainty at the moment.

November Prices were down 2.5 percent to 52.5. Holcomb said this decline, as with other report metrics, highlights the fact that demand is not robust, with prices well-controlled and maintained at the moment.

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About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman


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