November 2015 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that the U.S. manufacturing contracted during November for the first time in 36 months. The PMI registered 48.6% (50.5% expected), a decrease of 1.5 percentage points from the October reading of 50.1%, and the lowest reading since June 2009. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. About the only positive aspect of the survey was an increase in employment; declining manufacturer inventories could perhaps be considered positive as well. 

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Both Wood Products and Paper Products were unchanged in November; in fact, Wood Products was not even mentioned in the report. For Paper Products, employment growth was apparently offset by declines in new and backlogged domestic orders, and new export orders.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- slowed in November. The NMI registered 55.9% (58.2% expected), 3.2 percentage points lower than the October reading of 59.1%. Important internals weakened essentially “across the board,” but remained in expansion. 

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Real Estate and Construction reported increases in activity, whereas Ag & Forestry was unchanged.

Lumber prices were higher; but diesel fuel, gasoline and natural gas prices were lower. No relevant commodity was in short supply.

ISM’s and Markit’s surveys diverged again in November: ISM’s PMI fell into outright contraction while Markit’s Manufacturing PMI slowed but remained in expansion. ISM’s NMI decelerated while Markit’s Services PMI accelerated to a three-month high.

Comments from Markit Chief Economist Chris Williamson are presented below:

Manufacturing -- “While the pace of manufacturing growth appears to have slowed in November, it remains encouragingly resilient, which is all the more impressive once headwinds such as the strength of the dollar and malaise in overseas markets are taken into account.

“The PMI results are indicative of the manufacturing sector growing at an annualized rate of around 2% in the fourth quarter so far.

“Growth is being driven by domestic demand, with exports falling back into decline. The uncertain global picture and strong currency are key areas of worry to manufacturers, which led to a more cautious approach to hiring during the month. However, there’s nothing new that will overly concern policymakers, leaving the door open for rates to rise later in the month.”

Services -- “The PMI surveys indicate that US economic growth hit a six-month high in November, indicating 0.5% (2.0% annualized) GDP growth so far in the fourth quarter. The upturn points to the economy enjoying a strong performance as we head towards the end of the year.

“Growth is being fueled by rising domestic demand, which propelled growth in the vast service economy higher and more than offset an export-led weakening of manufacturing growth.

“The survey also signals robust employment growth, consistent with non-farm payrolls rising by around 180,000.

“Cost pressures are muted but prices appear to be on the rise, with average rates charged for goods and services showing the largest monthly gain since June.

“As such, the data add further fuel to arguments that the economy is in a healthy enough state to cope with higher interest rates.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.