U.S. manufacturing grew for fourth month in a row in November
The ISM said its manufacturing index fell to 53.6 in November from 55.7 in October, but the index remained in expansion territory for the fourth-straight month. Index numbers above 50 indicate an expansion; under 50, a contraction. Prior to the current four-month stretch above 50, the manufacturing index had been below 50 for about 2 years. The consensus of economists surveyed by Bloomberg News had been that the index would fall to 55.0 in November.
One major bright spot in November: The manufacturing index's new orders component -- a measure of future demand -- increased to 60.3 in November from 58.5 in October.
Four other key components of the index fell in November. The production index fell to 59.9 in November from 63.3 in October; the employment index, to 50.8 from 53.1; the prices paid index, to 55.0 from 65.0; and the inventories index, to 41.3 from 46.9.
In the case of the inventories index, a number below 50 indicates that manufacturers are reducing their stockpiles.
Encouraged by Rise in New Orders
"The manufacturing sector grew for the fourth consecutive month in November," Norbert J. Ore, chairman of the ISM's Manufacturing Business Survey Committee said, in a statement. "While the rate of growth slowed when compared to October, the signs are still encouraging for continuing growth as both new orders and production are still at very positive levels, and the prices index fell 10 points, signaling less inflationary pressure on manufacturers' costs. Overall, the recovery in manufacturing is continuing, but many are still struggling based on their comments."
In November, 12 of the 18 manufacturing industries reported growth, the ISM said.
In addition, survey respondents' comments in November indicated a complex, uneven U.S. economic recovery, noting both rising demand and concern about the dollar: "Demand from automotive manufacturers remains strong and building" (fabricated metal products sector); "Capital construction seems to be picking up, and we are seeing more jobs that are bid out." (electrical equipment, appliances & components sector); "Becoming concerned about the value of the U.S. dollar" (apparel, leather & allied products sector); "Low value of the dollar driving commodity costs higher" (food, beverage & tobacco products sector).
Even though the November manufacturing index declined further than expected, the key take-a-way from the data remains the longer-term trend: it continues to show an expansion.
Also, after the top-line trend, Wall Street will likely focus on the increase in the new orders component: it's a tell-tale stat regarding future demand, it's been rising for five months, and its rate of change is increasing -- all bullish signs for the immediate quarters ahead.
Bottom line: As with the rest of the U.S. economy, a recovery in manufacturing is under way, but it's a tepid, choppy, uneven recovery -- one that's hardly indicative of sustainable GDP growth. But it is a beginning.