December 2, 2024
The Institute for Supply Management’s index of conditions in the manufacturing sector rose 1.9 points in November to 48.4 after having declined 0.7 point in October. While 50.0 is the breakeven point for the manufacturing sector, a level of 42,5 is generally regarded as the breakeven point for the economy as a whole. A level of 48.4 is associated with a GDP increase of 1.7%. After having risen 2.8% in the third quarter our GDP forecast for the fourth quarter is 2.5%
The ISM organization does a similar survey for the services sector. The ISM index of conditions in the service sector for October will be released on Wednesday, December 4.
The Institute for Supply Management Chair for the Survey Committee Timothy Fiore said, ““Demand remains weak, as companies prepare plans for 2025 with the benefit of the election cycle ending. Production execution eased in November, consistent with demand sluggishness and weak backlogs. Suppliers continue to have capacity, with lead times improving but some product shortages reappearing. Sixty-six percent of manufacturing gross domestic product (GDP) contracted in November, up from 63 percent in October. The share of manufacturing sector GDP registering a composite PMI® calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 48 percent in November, a 2-percentage point increase compared to the 46 percent reported in October. Two of the six largest manufacturing industries — Food, Beverage & Tobacco Products; and Computer & Electronic Products — expanded in November, the same number of industries as in October,.”.
Comments from respondents include the following:
- “High mortgage rates continue to hamper demand for new housing construction, which is a key market for adhesives and sealants.” [Chemical Products]
- “Business remains slow. We anticipate that the first half of 2025 will be similar and hope that demand increases in the second half of 2025.” [Transportation Equipment]
- “Inflation, even after easing, continues to impact demand. Consumers are looking for value, and purchasing behaviors are changing as many shoppers reduce consumption, causing softer volume.” [Food, Beverage & Tobacco Products]
- “Backlog is rising precipitously after 18 months of troughing. The long-awaited pent-up buying has started. Competition for qualified technical labor is a constraint on operational throughput.” [Computer & Electronic Products]
- “A general construction slowdown in the fourth quarter has created a surplus of finished goods, creating the need for an extra two weeks of shutdown over the Christmas holiday period. We are carefully watching demand in the first quarter to determine if more permanent workforce reductions will be necessary.” [Machinery]
- “Business is slowing as customers destock and appear uncertain about near-term demand. Preliminary forecast for 2025 is down significantly; we hope to see improvements now that we are beyond U.S. election uncertainties.” [Fabricated Metal Products]
- “Our supplier has a positive outlook on the U.S. economy going into 2025. Our business is seeing an uptick in sales forecasts for the first quarter of 2025 versus the fourth quarter of 2024. Overall, our outlook for 2025 is optimistic.” [Textile Mills]
- “We’re finally seeing traction in the last few weeks (with) a higher volume of orders. Backlog is starting to grow.” [Electrical Equipment, Appliances & Components]
- “Late to the game, we are now working on our buying plan in light of potential increased tariffs on imports from China. Cost and capacity of U.S. manufacturing is a concern; a lack of relationship with alternate low-cost international manufacturers is another.” [Miscellaneous Manufacturing]
- “After the election, we have seen an uptick in customers wanting to come back to the U.S. for making their products. We are working through these inquiries. They seem very motivated.” [Primary Metals]
The orders component rose 3.3 points in November after having risen 1.0 point in October to 47.1 and 1.5 points in September. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. Basically, they are bouncing around in a range from 45.0 to 50.0. Fiori noted that, “Of the six largest manufacturing sectors, three (Food, Beverage & Tobacco Products; Computer & Electronic Products; and Machinery) reported increased new orders. Panelists again noted a continued level of uncertainty and concern about a lack of new order activity, with a 1-to-1 ratio of positive comments versus those expressing concern about near-term demand, an improvement compared to October,”
The production component rose 0.6 point in November to 46.8 after having declined 3.6 points in October after having jumped 5.0 points in September. Fiore said that,“New order rates expanded only marginally as backlog levels continued to decline, causing manufacturers to reduce output to close the calendar year. As noted in the inventories section, companies are showing signs of willingness to invest in inventory, a marked departure from the last two years of activity.”
The delivery performance of suppliers to manufacturing organizations declined 3.3 points in November to 48.7 after falling 0.5 point in October. This means that supplier deliveries were slightly faster in November . Fiori noted that, “Supplier deliveries moved into ‘faster’ territory as additional supplier capacity provides material velocity benefits to panelists’ companies,”
The employment index jumped 3.7 points in November to 48.1 after having risen 0.5 point in October. The July through October readings are among the four lowest recorded since the index registered 43.7 percent in July 2020, early in the economic recovery.. Fiore noted that, “The index contracted for the sixth consecutive month after an expansion in May, which broke a seventh-month streak of contraction. Of the six big manufacturing sectors, only one (Food, Beverage & Tobacco Products) expanded employment in November. Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes. This sentiment was supported in November by the approximately 1-to-1.5 ratio of hiring versus staff reduction comments, compared to a 1-to-3 ratio the previous month, meaning less workforce reduction activity,” An employment index above 50.3 is generally consistent with an increase in the BLS data on manufacturing employment.
The backlog of orders declined 0.5 point in November to 41.8 after having dropped 1.8 points in October. Fiore noted that, “The index remained in deep contraction in November, as improvement in new orders coupled with reduced production levels were insufficient to prevent backlogs from declining further,”
Customer inventory levels rose 1.6 points in November to 48.4 after having fallen 3.2 points in October. Fiore said that,““Customers’ inventory levels in November were marginally above ‘too low.’ Panelists are reporting that the amounts of their products in their customers’ inventories suggest a demand level that is neutral for future new orders and production.”
With a moderate increase in the orders index in the orders index and a small increase in customer inventories the ratio of orders to inventories was unchanged in November at 1.0. The 1.0 level for this index suggests that production should be relatively unchanged in the months ahead.
The prices paid component declined 4.5 points in November to 50.3 after having jumped 6.5 points in October. Fiore noted that, “The Prices Index indicated slightly increasing prices in November for the second consecutive month. Aluminum, copper, and natural gas registered slight increases, offset by steel, plastic resins and crude oil moving down in price. Twelve percent of companies reported higher prices in November, compared to 20 percent in October.”
After having risen 2.8% in the third quarter we expect GDP to increase by 2.5% growth in the fourth quarter. The economy is showing few signs of slowing down.
Stephen Slifer
NumberNomics
Charleston, S.C.
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