November manufacturing output is solid, reports ISM

Following two months of mild sequential declines, November manufacturing output trended back to growth mode, according to the monthly manufacturing Report on Business, which was released today by the Institute for Supply Management (ISM).

The report’s key metric, the PMI, rose 1.6% to 59.3 (a reading of 50 or higher indicates growth) while the index has grown for 27 consecutive months, with the overall economy now having grown for 115 consecutive months. Prior to the November increase, the PMI saw sequential declines in September and October, following its most recent high of 61.3 in August, the highest reading over the last 15 months. Compared to the 12-month average of 59.2, the October PMI is 0.1% above the 12-month average of 59.3.

ISM reported that 13 of the 18 manufacturing sectors reported growth in August, including: Computer & Electronic Products; Plastics & Rubber Products; Paper Products; Textile Mills; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Chemical Products; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Furniture & Related Products; and Petroleum & Coal Products. The three industries reporting contraction in November are: Printing & Related Support Activities; Nonmetallic Mineral Products; and Primary Metals.

Most of the report’s key metrics saw gains in November.

New orders which are commonly referred to as the engine that drives manufacturing, essentially erased October’s 4.4% decline to 57.4 with a 4.7% increase to 61.1, with the index now having grown for 35 consecutive months and 11 of 18 manufacturing sectors reporting growth for the segment.

Production eked out a 0.7% gain to 60.6, growing for the 27th consecutive month. Employment saw a 1.6% increase to 58.4 and saw growth for the 26th consecutive month. Inventories, at 52.9, headed up 2.2%, growing for the 11th month in a row. The gain in inventories, according to the report, saw supplier deliveries slow at a faster rate to 62.5 (a reading above 50 indicates contraction) for the last 26 months.  

Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee, commented in the report that inputs, in the form of supplier deliveries, inventories, and imports, gained as a result of inventory growth, with supplier delivery easing improved factory consumption, as well as stable inventory growth and import expansion.

Comments submitted by ISM member respondents included in the report were mixed to a degree, with trade-related issues remaining front and center for a various sectors.

A machinery respondent said that trade tariffs and commodity increases have affected his company’s plans to remain competitive, and a nonmetallic mineral products respondent said that it is continuing to increase imports in order to receive material in by the end of the year to avoid potential 25% tariffs.

Transportation-related concerns remained intact as well, with a chemical products respondent citing a loosening in the truck market and an increase in empty international shipping containers, which are signs of decreasing business activity.

“Things are definitely closing strong,” said Fiore in an interview. “New orders were up nearly five points, and the PMI, at this point, is bouncing across the top. November was definitely a good month. Seasonality factors contributed to the new orders number and were positive overall for the raw numbers, as there were fewer production days for the month.”

Looking at demand, which Fiore groups together as new orders, customer inventories, and backlog of orders, with new orders up, customer inventories down 1.8% to 41.5 and positive for the future, and backlog of orders growing slightly, it is likely 2018 will close the year strongly, with prospects positive for January and February as well.

November new export orders, at 52.2, were flat, and imports, at 53.6, slipped 0.7%.

With the United States and China recently announcing that a 90-day stay on the U.S. increasing Chinese import tariffs to 25% from the current level of 10% on more than $200 billion worth of goods, which Fiore labeled as a “cease fire,” he said that essentially means things will not get worse, with things in a holding pattern for 90 days.

“This will essentially freeze investment or drive investment to lower cost areas outside of China,” he said. “Some of our respondents talked about moving stuff from China to other countries to avoid import tariffs. Also on the tariff side, 48% of manufacturing GDP expanded their exports in the month of November, down from 56% in October. Many manufacturers continue to accelerate imports to beat that 25%, and now that there is not a 25% tariff, they will continue to do so, as that 25% shows up in March and not January. It is not like it is going away.”