Manufacturing activity is up in November for third straight month, reports ISM

Manufacturing growth continued to show growth in November, according to the most recent edition of the Institute for Supply Management’s monthly Manufacturing Report on Business.

The PMI, the index used by the ISM to measure growth, was 53.2 in November, which was 1.3 percent ahead of October, while growing for the third straight month, as well as the highest level the PMI has reached, going back to February 2015’s 53.3. And the November PMI was 2.2 percent above the 12-month average of 51.0, with the over all economy growing for the 90th consecutive month.

Three of the report’s core four metrics, including the PMI, were up in November.

New orders, which are viewed as the engine driving manufacturing, rose 0.9 percent to 53.0, heading up for the third straight month, and production rose 1.4 percent to 56.0, also up for the third month in a row. Employment was off slightly, falling 0.6 percent to 52.3, while still remaining on the right side of growth for the second month in a row (a level of 50.6 percent or higher indicates employment growth is occurring).

ISM said that of the 18 manufacturing sectors contributing to the report, 11 reported growth, including: Miscellaneous Manufacturing; Petroleum & Coal Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; and Primary Metals. The six industries reporting contraction in November were: Printing & Related Support Activities; Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Furniture & Related Products.

Like last month, comments included in the report by ISM member respondents were largely positive. A food, beverage & tobacco products respondent said that the sector remains strong, with orders and forecasts consistent and a positive demand outlook. A primary metals respondent noted that heading into 2017, company business levels look pretty consistent compared to 2016. A miscellaneous manufacturing respondent observed that business conditions are good, coupled with the labor market tightening such that it is difficult to staff to completely fulfill production demand.

“When you look at manufacturing, it has been dragging for some time, but over the last three months there has been growth and things are now looking pretty good,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee. “New orders and production were solid, as well as strong forecasts for capital reinvestments show that manufacturers are getting things in before year-end or were deferred, coupled with the fiscal timing. This leads me to believe there is a confidence in regards to what the future bodes, so therefore companies are going for the whole reinvestment process and getting ready for improvements in regards to things like planned equipment and also on the consumer side.”

Inventories in November increased 1.5 percent to 49.0, slowing for the 17th month straight, backlog of orders were up 3.5 percent but below 50 at 49.5, contracting for the fifth consecutive month, and supplier deliveries were down for the seventh month straight and were up 3.5 percent to 55.7 (a reading above 50 indicates contraction for supplier deliveries).

The slowdown in supplier deliveries was viewed as a positive by Nieves, as it becomes more of a demand or capacity issue, as inventory continues to be burned off, albeit the rate of contraction is slower.

“As deliveries are slowing, the backlog of orders is not as much in the pipeline,” said Nieves. “Manufacturers are trying to burn off the inventory before year-end, based on our respondents’ comments. They don’t want to have a lot of inventory on hand at the end of the fiscal period.

When asked what the impact of President-elect Donald Trump’s administration would be on manufacturing, Nieves said it is too soon to tell. But he did say that the current mindset of manufacturers is likely in a good place right now, adding that how the incoming administration impacts things like exports and the strength of the dollar remains to be seen.