November 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for November 2022 slipped into contraction. The PMI registered 49.0%, down 1.2 percentage points (PP) from October’s reading. (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. Subindexes with the largest changes included customer inventories (+7.1PP), order backlogs (-5.3PP), imports (-4.2PP), and input prices (-3.6PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated in November (+2.1PP, to 56.5%). Exports (-9.3PP), imports (+9.1PP), and slow supplier deliveries (-2.4PP) exhibited the largest changes.

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Of the industries we track, Wood Products and Paper Products both contracted. Respondent comments included the following:

Construction. “Generally unchanged month over month. New business requests are solid, with costs rising steadily for materials, meals and lodging.”

 

Changes in S&P Global’s survey headline results were mixed relative to those of ISM: For manufacturing both surveys fell into contraction; for services, ISM expanded more rapidly while S&P contracted more quickly. Details from S&P Global’s surveys follow --

Manufacturing. November sees first deterioration in U.S. manufacturing performance since June 2020.

Key findings:
* Renewed decline in output amid faster fall in new orders
* First improvement in supplier performance since October 2019
* Cost pressures ease further

 

Services. Business activity contraction gains pace as demand conditions weaken in November.

Key findings:
* Quicker fall in new orders weighs on service sector output
* Slowest rise in cost burdens since December 2020...
*...with selling price inflation softening again

 

Commentary by Chris Williamson, S&P Global’s senior economist:

Manufacturing. “A combination of the rising cost of living, higher interest rates and growing recession fears have led to slumping demand for goods in both the [domestic] market and abroad. Companies are consequently cutting production at a rate not seen since the global financial crisis, if the initial pandemic lockdowns are excluded. However, even with the latest production cuts, the downturn in demand has still led to one of the largest increases in unsold stock recorded since survey data were first available 15 years ago, which suggests that companies will continue to reduce production in the coming months to bring these inventories down to more manageable levels.

“Likewise, companies are slashing their purchases of inputs and raw materials at a rate not seen outside of the pandemic since the global financial crisis.

“This slump in demand is increasingly manifesting itself in a shift from a sellers’- to a buyers’-market for a wide variety of goods, as evidenced by improving supply chains, meaning price pressures are now abating rapidly.

“While supply chain worries persist, notably in relation to China’s lockdowns, companies’ concerns are increasingly moving away from the supply side to focusing on the darkening outlook for demand, meaning the business mood remains among the gloomiest seen over the past decade.”

 

Services. “The survey data are providing a timely signal that the health of the U.S. economy is deteriorating at a marked rate, with malaise spreading across the economy to encompass both manufacturing and services in November. The survey data are broadly consistent with the U.S. economy contracting in the fourth quarter at an annualized rate of approximately 1%, with the decline gathering momentum as we head towards the end of the year.

“There are some small pockets of resilience, notably in the tech and healthcare sectors, but other sectors are reporting falling output amid the rising cost of living, higher interest rates, weaker global demand and reduced confidence. Struggling most of all is the financial services sector, though consumer facing service providers are also seeing a steep fall in demand as households tighten their budgets.

“A striking development is the extent to which companies are increasingly reporting a shift towards discounting in order to help stimulate sales, which augurs well for inflation to continue to retrench in the coming months, potentially quite significantly.”

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.