ISM Manufacturing: Another Modest Decline But Still Strong

Bottom Line: Manufacturing activity expanded in November. After months of nearly every industry of the 18 surveyed reporting stronger growth, 2 sectors reported unchanged activity in November and two reported contraction (wood products and coal). That said, the differential between new orders and inventory levels grew, suggesting manufacturing activity levels will continue to stay in expansionary territory (above 50 on headline ISM) over the coming months. Employment in the manufacturing sector grew, and was modestly above the average survey level for the last twelve months. Prices paid, declined from 68.5% to 65.5% this month indicating a modest deceleration in the price of raw materials. The ISM Manufacturing Index FELL by 0.5 points in November to 58.2%, compared with market expectations for a smaller decline to a 58.3% This indicates that manufacturing activity expanded modestly during the month. New Orders grew slightly from 63.4% to 64.0%. Meanwhile, Export Orders declined slightly. Production grew modestly from 61.0% to 63.9%. Consequently, Order Backlogs grew sharply. Inventories declined modestly from 48.0% to 47.0%. They are modestly below the average survey level for the last twelve months. Employment declined slightly from 59.8% to 59.7%, suggesting there will be modest factory job creation in the upcoming payroll employment report. Prices declined modestly.

Quotes from Survey:

• "Continuing to see more orders for the next six to 12 months." (Chemical Products)
• "Strong sales through third and now fourth quarters. Backlog increasing, and capacity at suppliers tightening." (Machinery)
• "Business has leveled out but remains strong heading into the end of the year." (Computer & Electronic Products)
• "We are just coming off a record sales year. We expect to continue in 2018 robust activity." (Miscellaneous Manufacturing)
• "We are seeing steady, consistent demand for end of year. We usually see a slowdown, which we haven’t seen yet." (Fabricated Metal Products)
• "Overall industry demand remains strong. Continue to have a healthy backlog of orders. Local economy is also strong, with a fairly tight labor market." (Transportation Equipment)
• "Business is strong. Employment is tight. Supplier deliveries have lengthened. A few suppliers are still blaming Hurricane Harvey for the lead times." (Food, Beverage & Tobacco Products)
• "Strong season demand for products and continued requirements for uptime." (Nonmetallic Mineral Products)
• "Currently, we have not experienced the typical seasonal slowdown toward the end of Q4. Could be that there is a lot of optimism in the American economy." (Plastics & Rubber Products)