Manufacturing contracts in November, ISM reports

Economic uncertainty blunts two straight months of growth

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After two months of growth, the manufacturing sector contracted slightly in November, as the Institute for Supply Management’s PMI Index fell to 49.5%, just under the 50% threshold for growth.

The PMI had registered above 51% in September and October, reversing a dip below 50% in the summer. Economists with the ISM said economic uncertainty both in the U.S. and global contributed to the decline.

“Comments from the panel this month generally indicate that the second half of the year continues to show a slowdown in demand; respondents also express concern over how and when the fiscal cliff issue will be resolved," said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee. “The PMI registered 49.5%, a decrease of 2.2 percentage points from October's reading of 51.7%, indicating contraction in manufacturing for the fourth time in the last six months. This month's PMI reading reflects the lowest level since July 2009 when the PMI registered 49.2%.

While the Production Index registered 53.7%, indicating growth in production for the second consecutive month, the Employment Index registered 48.4%, a decrease of 3.7 percentage points, which is the index's lowest reading since September 2009 when the Employment Index registered 47.8 %.

One respondent told the survey committee, “Business is steady, but not much more than that. We are in a lull." Another commented, “The principle business conditions that will affect the company over the next three or four quarters will be the U.S. federal government tax and budgetary policies; the impact of those policies is not yet clear.”

Since the PMI was above 42.6%, which is the threshold for overall economic growth, November marked the 42^nd consecutive month of growth, according to the PMI Index. “The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (51.8%) corresponds to a 3.1% increase in real gross domestic product,” Holcomb said. “In addition, if the PMI for November (49.5%) is annualized, it corresponds to a 2.3% increase in real GDP annually."

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