Core Summary

  • U.S. manufacturing activity contracted for the ninth consecutive month in November, with new orders, supplier deliveries, and employment indicators all weakening, according to data from the Institute for Supply Management (ISM).
  • The ISM Manufacturing PMI fell 0.5 percentage points month-over-month to 48.2%, said Susan Spence, chair of the ISM Manufacturing Business Survey Committee, in a statement on Monday, December 1. New orders declined for the third consecutive month, with many respondents "still reporting softer overseas orders related to tariffs and ongoing uncertainty in U.S. economic policy."
  • Employment contracted at a faster pace in November than in October, with 67% of respondents saying "managing headcounts remains the norm for companies rather than hiring," Spence said. This finding further confirms the trend of a cooling U.S. labor market.

Deeper Insights

Some recent manufacturing reports paint a more optimistic picture than the ISM survey suggests.

The New York Fed said on November 17 that factory activity in New York State unexpectedly accelerated in November, reaching its fastest pace in a year, driven by increases in new orders and shipments.

Despite signs of softening in the national labor market, the New York Fed, citing business surveys, said factory employment in New York State rose slightly and the average workweek lengthened.

S&P Global also reported growth in U.S. manufacturing output in November.

However, Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement on Monday, December 1: "The health of U.S. manufacturing becomes increasingly concerning the deeper you dig."

Williamson noted: "The pace of growth in new order inflows has slowed sharply, suggesting a marked weakening in demand growth."

He added: "Manufacturers produced more goods but often struggled to find buyers," noting that "persistently strong output growth combined with weaker-than-expected sales has led to a worrying sharp rise in unsold inventories."

Williamson said manufacturers have filled unsold inventories to the highest levels since data collection began in 2007 for two consecutive months. Such unplanned inventory accumulation typically foreshadows production cuts.

"Meanwhile, profit margins are under pressure from weak sales, intense competition, and rising input costs, the latter widely linked to tariffs," Williamson said.

The decline in the ISM manufacturing index prompted the Atlanta Fed to lower its annualized growth forecast for third-quarter real gross domestic product (GDP) to 3.9%. The Atlanta Fed had projected annualized growth of more than 4% for the third quarter in early November. According to data from the St. Louis Fed, manufacturing accounts for about 9.4% of GDP.

"In my view, economic activity is not accelerating at present," said Federal Reserve Governor Christopher Waller in a speech on November 17.

He said private-sector economic analysts' forecasts "show real GDP growth in the second half of this year will be close to the moderate pace of the first half, and significantly slower than last year's pace."

In a comprehensive assessment of the economy, Waller said: "I am well aware that the data indicate a larger decline in demand than in supply." He called for a 25-basis-point rate cut at the Fed's December 9-10 monetary policy meeting to boost demand and stabilize the labor market.