The Institute for Supply Management (ISM) index of manufacturing fell 0.5 points to 58.2 in November, largely in line with market expectations for a 58.3 reading. Nevertheless, the index remains well in expansionary territory – a fifteenth consecutive month of growth.
The report details were mixed, with declines in the components previously affected by hurricanes offsetting gains in more forward looking indicators. For instance, both supplier deliveries (-4.9 points to 56.5) and inventories (-1 to 47) declined from hurricane-elevated levels. In contrast, production advanced 2.9 to 63.9 and new orders rose 0.6 to 64.
Prices paid index continued to fall back from September’s hurricane-boosted high of 71.5, giving back 3 points to 65.5 in November.
The spread between new orders and inventories – a good leading indicator of activity – widened in November to 17 (+1.6 points), suggesting that the manufacturing is likely to hold onto the recent gains in the coming months.
Fourteen of the eighteen manufacturing industries reported expansion in November, with paper products, machinery, and transportation equipment registering the strongest advances. Two industries recorded a contraction in activity (wood products, petroleum and coal products), while two others were unchanged in November.
Key Implications
As is sometimes the case with the ISM manufacturing index, the details of the report painted a more positive picture of the manufacturing sector than the headline index would suggest. The surge in the supplier deliveries following this summer’s hurricanes was still unwinding in November. This weighed on the headline index, more than offsetting the positive contributions from a rise in production and new orders. Comments from business executives further reinforce the notion of a booming U.S. manufacturing sector, with record sales being reported in some sectors and limited signs of the typical seasonal slowdowns taking hold at year-end. While some of this is likely linked to hurricane rebuilding efforts, it’s also a reflection of persistently strong domestic and global demand.
With the prospect of corporate tax reform in some form ever closer to being realized, there is a chance that, in addition to redistribution to shareholders, some of the extra cash may find its way into capital goods produced by U.S. manufacturers. Should this be the case, the 2017 boom in manufacturing is likely to carry into the New Year and continue to support the U.S. economy on its path to full capacity.
