U.S. Manufacturing Shrank in November

Purchasing managers’ index breaks below 50 to hit lowest level since mid-2009.

Manufacturing in the U.S. unexpectedly contracted in November as orders dropped to a three-month low and exports slowed.

The Institute for Supply Management’s factory index decreased to 49.5, the lowest since July 2009, from 51.7 a month earlier, the Tempe, Arizona-based group said today. Economists projected the index would ease to 51.4, according to the median forecast in a Bloomberg survey. A reading of 50 marks the dividing line between expansion and contraction.

Less corporate investment in equipment as U.S. lawmakers debate the nation’s budget, weaker orders from overseas and disturbances related to superstorm Sandy are converging to slow manufacturing. Eleven of the 18 industries covered in the report reported business shrank last month.

“The underlying picture for manufacturing is certainly one of weakness,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Soft U.S. final demand, a need to adjust inventories, weakening exports -- all of that adds up to a weak manufacturing sector.”

Stocks pared gains after the report. The Standard & Poor’s 500 Index rose 0.1 percent to 1,416.95 at 10:45 a.m. in New York after climbing as much as 0.5 percent.

Estimates for the ISM index from the 83 economists surveyed ranged from 49 to 53.5. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

Other reports today showed euro-area manufacturing kept contracting in November while factory output rose in China and Russia, underscoring the divergence of the global economic recovery.

Manufacturing output in the 17-nation euro area shrank for a 16th month, with a gauge of manufacturing rising to 46.2 from 45.4 in October. In China the Purchasing Managers’ Index climbed 50.6 and in Russia it expanded for a 14th month.

The ISM’s index of U.S. new orders dropped to a three-month low of 50.3 in November from 54.2. The production increased to 53.7 last month from 52.4 in October. The gauge of export orders dropped to 47 from 48. The employment index decreased to 48.4, the lowest since September 2009, from 52.1 the prior month.

The index of prices paid dropped to 52.5 last month from 55. A measure of supplier deliveries increased to 50.3 from 49.6.


Order Backlogs

The measure of orders waiting to be filled was little changed at 41 after 41.5. The inventory index decreased to 45 from 50, while a gauge of customer stockpiles slumped to 42.5 from 49.

Other regional manufacturing reports showed weakness last month, much of it in areas hit by Sandy. Factory activity in the New York-area contracted in November for the fourth consecutive month as the storm knocked out electrical power and limited activity, disrupting about 70 percent of businesses that were surveyed by the Federal Reserve. Output in the Philadelphia-area shrank for the sixth time in seven months.

Seven of 12 Fed districts reported “either slowing or outright contraction in manufacturing,” the central bank said last week in its Beige Book business survey, which reflected information collected before Nov. 14. The Cleveland, Richmond and St. Louis areas said business was positive.

Apart from the storm’s impact, uncertainty surrounding the so-called fiscal cliff of about $607 billion in automatic tax increases and spending cuts slated for 2013 if lawmakers fail to act is leading businesses to curb investment. Five of 12 Fed districts expressed concern about next year’s outlook, partly due to the lack of clarity about the budget, the report said.

Business spending on equipment and software fell 2.7 percent at an annual rate in the third quarter, the first drop since the expansion began in mid-2009. Capital spending has decelerated for four quarters.

There’s also risk overseas demand for U.S-made goods will slow further. The euro-area economy hasn’t expanded for a year, and China’s economic growth has slowed for seven quarters.

“Business levels are not bad,” Jerald Fishman, chief executive officer at chipmaker Analog Devices Inc., said on a Nov. 27 call with analysts. Still, “there’s so much uncertainty out there in Europe and the U.S.”

Fishman said that because of a lack of clarity on government tax policies, “people are just standing still and that impacts their capital spending budget.”


Bloomberg News

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