U.S. manufacturing activity in November reached its highest level since February 2015, positioning the industry to close 2016 on a positive note. The Institute for Supply Management’s (ISM) manufacturing index, the PMI, increased by 1.3 percent to reach 53.2 percent in November, the third consecutive month of growth.
“We’ve seen this trend of gradual growth for the last three months and that’s good news,” said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee. “The sector was dragging a bit during the year, but with an uptick at the tail end of the third quarter and now toward the end of the fourth quarter, it looks pretty good. A three-month trend means growth is sustainable.”
“Typically,” he added, “we see a dip toward the end of the year.” Any number above 50 in the ISM index indicates manufacturing is expanding; a number below 50 signals contraction.
The ISM’s new orders index registered 53 percent, an increase of 0.9 percentage point from the October reading of 52.1 percent. The production index registered 56 percent, 1.4 percentage points higher than the October level of 54.6 percent. One of the likely drivers of growth, said Nieves, is capital spending. “If we go back to the annual forecast late last year and this year, capital investment was a big factor,” he said. The ISM manufacturing panel expected capital expenditures to increase by at least 1 percent in 2016. Although manufacturing activity slowed during the middle of year, spending was likely deferred rather than cancelled. “Companies are closing out their budgets before year-end,” Nieves said.
Inventories of raw materials registered 49 percent, an increase of 1.5 percentage points from the October reading of 47.5 percent. Figures also showed factories waited longer for materials to be delivered, a sign of strengthening demand. Supplier deliveries registered 55.7 percent from 52.2 percent in October; and backlog registered 49.0 percent from 45.5 the prior month.
“Deliveries are slowing and that’s a good thing,” said Nieves. “Backlog is still contracting and inventory keeps depleting. What manufacturers tell us is everyone wants to get rid of inventory at the end of the year, so everyone is operating lean.”
Comments from the ISM’s manufacturing panel were generally positive, citing increasing demand. An executive in the computer and electronics sector was experiencing strong manufacturing numbers in anticipation of strong year-end bookings. One negative was industry employment, which declined by 0.6 percent to reach 52.3 percent in November. Executives cited some tightness in the labor market.
Of the 18 manufacturing industries, 11 are reporting growth in November in the following order: miscellaneous manufacturing; petroleum and coal products; paper products; computer and electronic products; food, beverage and tobacco products; chemical products; fabricated metal products; plastics and rubber products; machinery; nonmetallic mineral products; and primary metals. The six industries reporting contraction in November — listed in order — are: printing and related support activities; wood products; apparel, leather and allied products; electrical equipment, appliances and components; transportation equipment; and furniture and related products.