November 2023 ISM and S&P Global Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected no change in the rate of contraction in the sector during November. The PMI registered 46.7%, unchanged 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. Only the customer inventories index remained above 50; the largest changes occurred among prices paid (+4.8 percentage points), exports (-3.4PP), and order backlogs (-2.9PP). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+0.9PP, to 52.7%). Inventory sentiment (+7.8PP), imports (-6.3PP), and inventories (+5.9PP) exhibited the largest changes.

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Respondent comments included the following –

Wood Products. “Elevated financing costs have dampened demand for residential investment. Our business has been negatively impacted through reduced new orders for our products and services. We are purchasing less for production and finished goods inventories.”

Construction. “Opportunities across the construction industry remain strong. The labor market for skilled trades workers is tight.”

 

Changes in S&P Global’s headline index value for manufacturing declined whereas services increased. Details from S&P Global’s surveys follow --

Manufacturing. Renewed decline in US manufacturing performance as demand wanes.

Key findings:

• New orders contract with output growth slowing in response
• Input cost inflation eases notably
• Employment falls for second month running

Services. Renewed upturn in new business supports output growth in November.

Key findings:

• Slight expansions in new orders and activity
• Employment growth slows to fractional rate
• Cost inflation weakest since October 2020

 

Commentary by Chris Williamson, S&P Global’s chief business economist --

Manufacturing. “US manufacturers reported yet another tough month in November. Output barely rose as inflows of new work showed a renewed decline, hinting at little – if any – contribution to fourth quarter GDP from the goods-producing sector.

“Orders have in fact risen in only three of the past 18 months, reflecting a prolonged period of subdued post-pandemic demand, in turn linked to consumers switching their spending to services such as travel and recreation, and business customers reducing excess inventories which had been accumulated during the supply concerns of the pandemic.

“Encouragingly, there are some signs of the inventory cycle starting to turn, with producers of intermediate goods (inputs supplied to other firms) now reporting modest order book growth.

“US producers nevertheless continue to focus on cost cutting by trimming headcounts, and have now taken the knife to payroll numbers for two consecutive months. Barring the early months of the pandemic, the survey has not seen such a back-to-back monthly fall in factory employment since 2009.

“The decline in employment could feed through to weaker consumer spending, but will also reduce wage bargaining power.

“Lower wage pressures, combined with a marked cooling of raw material input cost inflation, have already fed through to a lowering of average factory selling price inflation for goods to a rate below the average seen in the decade prior to the pandemic, the rate of increase dipping again in November to help further lower consumer price inflation in the months ahead.”

 

Services. “The latest PMI data point to a further cooling of inflation pressures, but the surveys also signal only modest economic growth and near-stagnant employment, with the risk of the expansion losing further momentum as we head towards 2024.

“While service sector businesses continued to report further output gains in November, growth remains considerably weaker than seen earlier in the year, and forward-looking indicators point to growth slowing in the months ahead.

“Firms providing both goods and services have become increasingly concerned about excessive staffing levels in the face of weakened demand, resulting in the smallest overall jobs gain recorded by the survey since the early pandemic lockdowns of 2020.

“The cooling jobs market has been accompanied by lower wage growth which, combined with recent oil price falls, helped pull business cost growth down to its lowest for three years, dropping in November to a level indicative of inflation approaching the Fed’s 2% target in the coming month.”

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.