December 4, 2012

U.S. Manufacturing Weakest in 3+ Years

By Tim Iacono 

The Institute for Supply Management reported that the broadest measure of U.S. manufacturing activity fell from 51.7 in October to 49.5 in November, indicating contraction for the first time in three months and coming in well below the consensus estimate for a reading of over 51 (recall that readings above and below 50 indicate expansion and contraction, respectively).

This marks the lowest level since July of 2009, back when the economy was first emerging from 2008-2009 recession, and resumes the trend of modest contraction that began over the summer, this index now indicating contraction during four of the last six months as shown below.

ISM Manufacturing Index

The important new orders index moved sharply lower but continued to indicate a modest expansion, falling from 54.2 in October to 50.3 in November, and there was mixed news in other sub-indexes. Boding ill for Friday’s labor report was the first contraction in the employment component in three years, down from 52.1 to 48.4, and both inventories and backlog orders contracted sharply, the former dropping from 50.0 to 45.0 and the latter falling slightly from an already severe contraction, down from 41.5 to 41.0. 

Two positive notes were that production expanded at a faster rate, up from 52.4 to 53.7 and cost increases were less severe, the prices paid component dipping from 55.0 to 52.5, however, this was a very disappointing report overall, consistent with growing pessimism amongst business owners.

About The Author - Tim Iacono, a retired software engineer living in Bozeman, Montana, is the founder of Iacono Research. (EconMatters author archive here.)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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