- The manufacturing purchasing managers' index was unchanged at 46.7 in November
- Incoming orders continue to decline, albeit at a moderate pace
- Employment in factories is declining as hiring slows
WASHINGTON, Dec 1 (Reuters) – U.S. manufacturing remained subdued in November. Factory employment continued to decline as hiring declined and layoffs increased. This is further evidence that the economy was losing momentum after robust growth last quarter.
Friday's survey from the Institute for Supply Management (ISM) followed Thursday's data that showed moderate growth in consumer spending and easing inflation in October. Economic activity is slowing as higher interest rates curb demand. However, most economists do not expect a recession next year and believe the Federal Reserve will be able to deliver the hoped-for “soft landing.”
During an event at Spelman College in Atlanta on Friday, Federal Reserve Chairman Jerome Powell said that “we're getting what we wanted out of the economy.”
The ISM said its manufacturing PMI was unchanged at 46.7 last month. It was the 13th consecutive month that the PMI remained below 50, indicating a decline in manufacturing. This is the longest such stretch since August 2000 to January 2002.
Some economists believed that the United Auto Workers strike, which ended in late October, continued to impact the PMI. A recovery is unlikely soon as manufacturers in the ISM survey overwhelmingly described inventories as bloated.
“This suggests that the goods sector has overestimated demand and production could fall further in the next few months, although this too could be due to ongoing strike effects as auto parts pile up while production is at a standstill,” said Will Compernolle, macro strategist at FHN Financial in New York.
Economists polled by Reuters had forecast the index rising to 47.6. According to ISM, a PMI reading below 48.7 over a period of time generally indicates a decline in the overall economy. However, the economy continues to grow, growing at an annual rate of 5.2% in the third quarter.
Three industries – food, beverage and tobacco, and transportation equipment and non-metallic mineral products – reported growth last month. The 14 industries reporting declines included paper products, electrical equipment, appliances and components, computer and electronic products, machinery and other manufacturing.
Comments from manufacturers were largely negative, citing the need to reduce inventories. Manufacturers of computer and electronic products said the “economy appears to be slowing dramatically.” Various manufacturing companies said: “Customer orders have extended into the first quarter of 2024, resulting in excessive inventory levels at the end of the year.”
Food, beverage and tobacco manufacturers reported that “our executives have called for a significant reduction in inventory, which has resulted in a shortage of customers.” Metal products manufacturers said that “automotive sales are still affected by the UAW strike,” adding , that they are “still waiting for orders to arrive.”
The continued decline in the PMI likely exaggerates weakness in the manufacturing sector, which accounts for 11.1% of the economy. Durable goods orders rose sharply year-over-year and factory production held up, excluding the impact of UAW labor action.
“We are not inclined to infer much deterioration from the ISM composite unless it deviates significantly outside this year's range, from a low of 46.3 in March to a short-lived high of 49.0 in September,” said Jonathan Millar, a senior economist at Barclays in New York.
Stocks on Wall Street traded higher. The dollar fell against a basket of currencies. US Treasury bond prices rose.
ISM PMI
HIGH CONSTRUCTION EXPENSES
A separate report from the Commerce Department's Census Bureau showed construction spending rose solidly in October, driven by construction of single-family homes.
“Despite the emerging signs of a slowdown, investors should know that there are opportunities in the markets,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “The current situation on the housing market could bode well for house builders.”
Construction expenses
The ISM survey's forward-looking new orders sub-index rose last month to a still weak 48.3 from 45.5 in October. Some factory inventories remained low last month, but the value of inventory held by customers rose to what the ISM described as the high end of “just right.”
“The leading indicators in the report, particularly new orders and customer inventory, do not point to an uptick in activity in the immediate future,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “However, the report also does not point to the pervasive weakness in manufacturing that is typically associated with a recession.”
Factory raw material prices were subdued, but did not fall at the same pace as in previous months. The survey's figure for prices paid by manufacturers rose to 49.9 from 45.1 in October, the highest in seven months.
Nevertheless, price pressure in the economy is easing. Annual inflation rose in October at its slowest pace in more than two and a half years, the government reported Thursday.
Cooling inflation is fueling optimism that the Fed will likely be done raising rates this cycle, with financial markets even expecting a rate cut in mid-2024.
Employment in factories fell for the second month in a row, with the ISM noting an increase in “turnovers, work stoppages and layoffs to reduce the number of employees.”
The survey's factory employment figure fell from 46.8 in October to 45.8 last month. This metric was not a reliable indicator of manufacturing wages in the government's closely watched employment report.
Manufacturing wages are expected to have rebounded in November as about 33,000 striking UAW members returned to work. The number of employees in factories fell by 35,000 jobs in October.
Total nonfarm payrolls are expected to have risen by 170,000 last month, after rising by 150,000 in October, according to a preliminary Reuters poll of economists.
The government is expected to release the November employment report next Friday.
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
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