Economic activity in the manufacturing sector expanded in November, and the overall economy grew for the 115th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
Manufacturing expanded in November as the PMI registered 59.3 percent, an increase of 1.6 percentage points from the October reading of 57.7 percent. This indicates growth in manufacturing for the 27th consecutive month, led by strong new orders, production output and continued slowing supplier delivery performance. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the PMI for November (59.3 percent) corresponds to a 4.9-percent increase in real gross domestic product (GDP) on an annualized basis.”
A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the November PMI indicates growth for the 115th consecutive month in the overall economy and the 27th straight month of growth in the manufacturing sector.
“Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index rebounding to above 60 percent, the Customers’ Inventories Index declining and remaining too low, and the Backlog of Orders Index steady. Consumption strengthened, with production and employment continuing to expand, both at higher levels compared to October. Inputs—expressed as supplier deliveries, inventories and imports—gained as a result of inventory growth. Supplier delivery easing improved factory consumption as well as inventory growth, and import expansion was relatively stable. Lead-time extensions continue, while steel and aluminum prices are declining. Supplier labor issues and transportation difficulties are at more manageable levels, but they continue to limit production potential.
“The expansion of new export orders was stable and at a recent historical low. However, four of six major industries contributed, down from five in October. Prices pressure continues, but at notably lower levels than in prior periods. The manufacturing community continues to expand, with November adding positively to the three-month rolling PMI average,” says Fiore.
Orders, Production and Inventory
The Inventories Index registered 52.9 percent in November, an increase of 2.2 percentage points from the 50.7 percent reported for October. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
“Inventories expanded for the 11th consecutive month, keeping pace with production and growing slightly as a result of improved supplier deliveries,” says Fiore.
ISM’s New Orders Index registered 62.1 percent in November, which is an increase of 4.7 percentage points when compared to the 57.4 percent reported for October, indicating growth in new orders for the 35th consecutive month. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
“Customer demand expansion reversed two consecutive months of softening, with the index returning above 60 percent and recording its highest value since August 2018, when it registered 65.1 percent,” adds Fiore.
ISM’s Production Index registered 60.6 percent in November, which is an increase of 0.7 percentage point when compared to the 59.9 percent reported for October, indicating growth in production for the 27th consecutive month.
“Production expansion continued in November, and at higher expansion rates compared to October. Transportation variables, labor constraints and tariffs appear to be less impactful, but lead-time expansions persist,” explains Fiore.
An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
ISM’s Backlog of Orders Index registered 56.4 percent in November, which is 0.6 percentage point higher than the 55.8 percent reported in October, indicating growth in order backlogs for the 22nd consecutive month. Backlogs continued to grow at three-month rolling average levels and represent significant future production demand and are a positive indicator for Q1 2019.
Exports, Imports and Prices
ISM’s New Export Orders Index registered 52.2 percent in November, unchanged from the October reading, indicating growth in new export orders for the 33rd consecutive month.
“The index remained stable during the period, but at levels not seen since November 2016, when the index registered 51.8 points. Four of the six big industry sectors contributed to the expansion, down from five in October,” says Fiore.
The eight industries reporting growth in new export orders in November—listed in order—are: Textile Mills; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Chemical Products; Computer & Electronic Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Machinery. The three industries reporting a decrease in new export orders in November are: Printing & Related Support Activities; Fabricated Metal Products; and Transportation Equipment. Six industries reported no change in new export orders in November.
ISM’s Imports Index registered 53.6 percent in November, a decrease of 0.7 percentage point when compared to the 54.3 percent reported for October, indicating that imports grew in November for the 22nd consecutive month.
The ISM Prices Index registered 60.7 percent in November, a decrease of 10.9 percentage points from the October reading of 71.6 percent, indicating an increase in raw materials prices for the 33rd cnsecutive month.
“The price increases across all industry sectors continue, but at sharply lower levels compared to prior months. This is the lowest month of price expansion since June 2017, when the index registered 53 points. The Business Survey Committee noted that price increases are continuing to soften and/or decline in metals (all steels, copper and aluminum). Increases continue for methanol, freight, labor, electrical and electronic components, printed circuit board assemblies and products manufactured primarily from steel. Shortages continue in electrical and most electronic components, and fabricated and machined components. Freight, aluminum, steel and caustic soda prices are down,” explains Fiore.
A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.
ISM’s Employment Index registered 58.4 percent in November, an increase of 1.6 percentage points when compared to the October reading of 56.8 percent. This indicates growth in employment in November for the 26th consecutive month.
“Employment continued to expand, supporting production growth. Respondents continued to note labor-market issues as a constraint to their suppliers’ production capability,” adds Fiore.
An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.