Core Summary

  • The Institute for Supply Management (ISM) said Monday that U.S. manufacturing activity contracted for the eighth consecutive month in November, but the new orders index rebounded into positive territory after shrinking for seven straight months.
  • "November production execution slowed, consistent with weak demand and insufficient backlog orders," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. He added that respondents "again mentioned ongoing uncertainty and concern about the lack of new order activity."
  • The ISM noted that while the new orders index rose, it has not shown steady growth since ending 24 consecutive months of expansion in May 2022; meanwhile, manufacturers of machinery, food, beverage and tobacco products, and computer and electronic products reported growth.

Deeper Analysis

Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, said Monday that the improvement in new orders may indicate manufacturers are poised to benefit from a rebound in economic growth and lower borrowing costs. In a note to clients, he said the signal from new orders "suggests that the decline in corporate bond yields over recent quarters and a slight improvement in external demand are beginning to provide support for U.S. manufacturers."

The U.S. economy has outperformed recession expectations this year. According to data from the Bureau of Economic Analysis, gross domestic product (GDP) grew at an annualized rate of 2.8% in the third quarter, following growth of 1.4% in the first quarter and 3% in the second quarter. Citing the ISM report and a construction spending indicator, the Atlanta Fed on Monday raised its current-quarter GDP growth estimate to an annualized rate of 3.2%, up from 2.7% on Wednesday.

Concerns about the direction of government policy have eased since last month's presidential election, providing CFOs and their executive colleagues with a more solid foundation as they formulate business strategies for 2025. "As companies develop their 2025 plans, they benefit from the conclusion of the election cycle," Fiore said.

S&P Global, reporting its U.S. manufacturing PMI on Monday, said manufacturer confidence rose to its highest level in several months in November. "Optimism about the year ahead has risen to a level not seen in two and a half years, aided by the removal of pre-election uncertainty and expectations of stronger economic growth and greater protectionism against foreign competition under the new Trump administration in 2025," Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

However, Williamson noted that "the good feeling has not yet translated into increased factory output," with production levels falling for the fourth consecutive month in November at the fastest pace in nearly 18 months. Excluding the pandemic period, he said, the gap between current output and expected future output widened by the largest margin in a decade. He said the gap highlights "a notable divergence between the current tough conditions and rising expectations for better times ahead."