Manufacturing activity contracts for 13th consecutive month

Economic activity in the manufacturing sector contracted in November at the same rate it did in October as companies manage outputs amid order softness, according to the Institute for Supply Management (ISM).

The ISM released Friday (Dec. 1) the November Manufacturing ISM Report on Business that shows the purchasing managers’ index (PMI) was flat at 46.7% from October. A PMI rate below 50% indicates manufacturing activity is contracting.

According to the November report, new orders and backlogs fell. Employment and production declined. Supplier deliveries rose. Raw materials inventories fell. Customers’ inventories were too high. Prices fell. Exports and imports decreased.

“Demand remains soft, and production execution is slightly down compared to October as panelists’ companies continue to manage outputs, material inputs and – more aggressively – labor costs,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “Suppliers continue to have capacity.”

The following three manufacturing industries reported growth in November: food, beverage and tobacco products; nonmetallic mineral products; and transportation equipment.

Survey respondents noted soft or delayed customer orders, mixed inventory levels and continued impacts from the United Auto Workers (UAW) strike.

“The economy appears to be slowing dramatically,” said a respondent in the computer and electronic products industry. “Customer orders are pushing out, and all efforts are being made to right-size inventory levels, both to mitigate carrying costs on pushed-out orders and to load up on inventory where costs are exploding, like cold-rolled steel.”

A respondent in the chemical products industry said, “starting to feel softening in the economy, with labor still a challenge to backfill critical roles. The 2024 forecast looks challenging, especially from a cost perspective.”

In the transportation equipment industry, a respondent said, “Nearly all microchip supply issues have been resolved, finally bringing an end to the three-year chip shortage. Material prices are remaining relatively flat. Supply chain issues continue in several areas, resulting from difficulties during the United Auto Workers strike.”

A respondent in the food, beverage and tobacco products industry said, “our executives have requested that we bring down inventory levels considerably, and it has started causing customer shortages. Both finished goods, and low inventories of raw and packing materials are creating issues in fulfilling customer demand, and in some cases causing serious production delays.”

A machinery industry respondent noted, “the end of the major construction season and an early pullback in customer capital expenditures purchases have resulted in a lower backlog in the fourth quarter.”

In the fabricated metal products industry, a respondent said the UAW strike continues to affect automotive sales. “Still waiting for orders to come in, and we also need to work down inventory levels that increased during the strike period,” the respondent said. “This will most likely happen in December.”

A respondent in the miscellaneous manufacturing industry said, “customer orders have pushed into the first quarter of 2024, resulting in inflated end-of-year inventory.”

In the nonmetallic mineral products industry, a respondent said, “our situation is good but guarded, as next year is hard to predict. There are undertones of uncertainty in the market, and the impact of inflation on maintenance and project costs has become apparent.”

A respondent in the primary metals industry said, “customers are back online after the UAW strike. Consuming inventory that was built as a strike bank. Still having issues with hiring quality candidates for both hourly and salaried positions. Current inventory levels are too high, but the order book remains strong.”

A respondent in the wood products industry said, “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.”