US Manufacturing Contracted for First Time Since May 2020 in November – ISM

American manufacturing contracted for the first time since May 2020 in November measured by the ISM after expanding for 29 straight months. The ISM Manufacturing PMI fell to 49 in November of 2022 from 50.2 in October and more than market forecasts of 49.8. New orders (47.2 vs 49.2), supplier deliveries (47.2 vs 46.8), and backlog of orders (40 vs 45.3) all contracted faster. Ahead of Friday’s employment report and following weak AFP, Challenger and JOLTS reports employment declined (48.4 vs 50) with companies confirming that they are continuing to manage headcounts through a combination of hiring freezes, employee attrition, and now layoffs.

US ISM Manufacturing November 2022

New Orders Contracting
Production Growing; Backlogs Contracting
Supplier Deliveries Faster
Raw Materials Inventories Growing; Customers’ Inventories Too Low
Prices Decreasing; Exports and Imports Contracting

  • The November ISM Manufacturing Index dropped to 49.0% (consensus 49.8%) from 50.2% in October.
  • The dividing line between expansion and contraction is 50.0%, so the sub-50.0% reading for November reflects a contraction in manufacturing activity.
  • The ISM for November hit its lowest level since May 2020, breaking a string of 29 months of expansion.
  • The New Orders Index decreased to 47.2% from 49.2%.
  • The Prices Index fell to 43.0% from 46.6%, hitting its lowest level since May 2020.
  • The Backlog of Orders Index dropped to 40.0% from 45.3%.
  • The Supplier Deliveries Index rose to 47.2% from 46.8%.
  • The Production Index slipped to 51.5% from 52.3%.
  • The New Export Orders Index increased to 48.4% from 46.5%.
  • The Employment Index dipped to 48.4% from 50.0% with companies confirming that they are continuing to manage headcounts through a combination of hiring freezes, employee attrition, and now layoffs.
  • “Of the six biggest manufacturing industries, two — Petroleum & Coal Products; and Transportation Equipment — registered weak-to-moderate growth in November.

 “Managing head counts and total supply chain inventories remain primary goals. Order backlogs, prices, and now lead times are declining rapidly, which should bring buyers and sellers back to the table to refill order books based on 2023 business plans”, Timothy Fiore, Chair of the ISM Manufacturing Business Committee said.

Comments from the ISM report:

  • “Customer demand is softening, yet suppliers are maintaining high prices and record profits. Pushing for cost reductions based on market evidence has been surprisingly successful.” [Computer & Electronic Products]
  • “Future volumes are on a downward trend for the next 60 days.” [Chemical Products]
  • “Orders for transportation equipment remain strong. Supply chain issues persist, with minimal direct effect on output.” [Transportation Equipment]
  • “Consumer goods are slowing down in several of our markets, although the U.S. economy seems decent. Cannot say the same for the European economy.” [Food, Beverage & Tobacco Products]
  • “General economic uncertainty has created a slowdown in orders as we approach the end of the year, and many of our key customers are reducing their capital expenditures spend.” [Machinery]
  • “Overall, things are worsening. Housing starts are down. We’re doing well against our competitors, but the industry overall is down. We’re sitting on cash (that is) tied up in inventory.” [Electrical Equipment, Appliances & Components]
  • “The market remains consistent: sales match expectations; there are concerns about the impact of rising interest rates on customers; most suppliers have recovered on labor, but some are still struggling; and inflation seems to have peaked, but commodity price decreases have not been passed through to us. Lots of unknowns regarding impact to the European Union from the Russia-Ukraine war and questions about customer behavior in 2023.” [Miscellaneous Manufacturing]
  • “There is caution going into 2023, but the commercial section of construction seems to still be going strong.” [Nonmetallic Mineral Products]
  • “Looking into December and the first quarter of 2023, business is softening as uncertain economic conditions lie ahead.” [Plastics & Rubber Products]
  • “Slight improvement on overall business conditions from the previous month.” [Primary Metals]

Source: ISM