American factory activity declined for the fourth straight month in November as sluggish global growth and continued uncertainty over trade issues took their toll, according a key gauge released Monday by the Institute for Supply Management.
The ISM’s purchasing managers’ index dropped to 48.1 in November, from 48.3 a month earlier, and below the consensus of 49.2. Figures below 50 indicate the manufacturing economy is contracting. The index is now hovering near the 10-year low of 47.8 registered in September.
Other ISM reports showed sharp declines as well. The ISM’s measure of new orders, which are typically tracked as a leading indicator of a downturn, fell to 47.2, from 49.1 in October, matching the years low reached in August, and again reaching a level last seen in April 2009. Inventories dropped 3.4 points to a 42-month low and employment reversed most of October’s gain, dipping to 46.3.
ISM purchasing managers’ index
RSM US Manufacturing Outlook Index
The continued weakness in the ISM manufacturing index was forecasted by RSM’s Manufacturing Outlook Index, which began seeing a slowdown in manufacturing as recently as July, when it declined below the zero level. The composite index is based on surveys of business sentiment conducted by six regional Federal Reserve banks and can be considered representative of the general direction of national manufacturing activity.
Other issues creating headwinds for American manufacturers include a strong dollar, which has made domestic goods less competitive abroad, and a stall in some U.S. factory orders as aircraft giant Boeing continues to struggle with investigations related to design problems in its 737 Max aircraft, with no clear end in sight for the current fleet grounding.
The ISM report was soft and the decline shown in new orders, if sustained, suggests the index could continue its downslope in December. While we don’t expect a significant further decline, the U.S. and global manufacturing sector remains stuck in a mild recession, and, even with a ”phase one” trade deal with China, we don’t expect a near-term bounce in the headline index.
The ISM index has continued to deteriorate over the past year as tariffs have forced domestic producers to examine alternative supply chains and delay their spending decisions because of continued uncertainty over trade policy. We expect these challenges will weigh on job growth and capital expenditures into 2020, forcing businesses to be cautious, while at the same time looking for opportunities to improve efficiencies and become more competitive.