The US manufacturing sector shows signs of improvement in November, with the S&P Global Manufacturing PMI rising to 49.7, reflecting post-election optimism, despite ongoing challenges in current production levels.
S&P Global Manufacturing PMI and ISM Data
The S&P Global Manufacturing Purchasing Managers’ Index (PMI) for November registered at 49.7, a notable increase from the preliminary figure of 48.8, which had been the lowest since 2020. The previous month’s figure was 48.5. This improvement suggests a rebound in sentiment among manufacturers, potentially driven by post-election optimism.
Conversely, the Institute for Supply Management (ISM) manufacturing index for November was reported at 48.4, exceeding expectations of 47.5 and up from October’s 46.5. This index is critical as it indicates the overall health of the manufacturing sector. An index below 50 signifies contraction, while above 50 indicates expansion. The rise in ISM captures a slight uplift in the manufacturing mood, despite still indicating a contraction.
Current Production and Future Outlook
Current production levels in the manufacturing sector fell for the fourth consecutive month in November, marking a decline at a rate not experienced in nearly 18 months. This trend highlights a disconnect between the optimism reflected in manufacturers’ expectations for future output and the grim reality of present production figures. The gap between anticipated production and actual output is now the widest in a decade, if excluding the pandemic period.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that “the mood among US manufacturers brightened in November,” suggesting that while confidence is on the rise, this has not yet translated into increased production. The expectations for the coming year have reached their highest level in two and a half years, buoyed by reduced uncertainty surrounding the election and the prospect of enhanced economic growth and protectionist policies under the anticipated new Trump administration in 2025.
Demand Conditions and Input Purchases
Despite the positive sentiment, demand conditions remain critical for manufacturers. Although export sales have continued to decline sharply, the drop in overall new orders in November was the smallest seen over the past five months, indicating a potential easing in domestic demand downturn. This could suggest a gradual recovery in the manufacturing sector as the economy moves into 2025.
Moreover, the promise of protectionism has led to an uptick in input purchases among manufacturers, as companies prepare for potential price hikes on imports due to expected tariffs. Approximately one in four companies that reported higher input purchases in November attributed this increase to tariff concerns, which highlights ongoing inflationary pressures.
Additional specific data from the ISM report included:
- Prices Paid: 50.3, down from 54.8 in October.
- New Orders: 50.4, up from 47.1, indicating a return to expansion.
- Production: 46.8, slightly up from 46.2.
- Employment: 48.1, increasing from 44.4.
- Supplier Deliveries: 48.7, a decline from 52.0, which reflects faster delivery times.
- Inventories: 48.1, a drop from 42.6, suggesting reduced stock levels.
- Backlog of Orders: 41.8, down from 42.3, indicating a shrinking backlog.
- New Export Orders: 48.7, an increase from 45.5.
- Imports: 47.6, down from 48.3.
- Customers’ Inventories: 48.4, slightly up from 46.8.
These figures illustrate a complex scenario where while some areas are seeing improvement, others are still facing difficulties, particularly in employment and backlog management.
The recent data indicates that the US manufacturing sector is navigating a challenging landscape marked by a mix of optimism and caution as it looks ahead to 2025. While the S&P Global Manufacturing PMI indicates a positive shift in sentiment, the ISM data reveals ongoing contraction in various areas. The Federal Reserve continues to contend with rising inflation risks, emphasizing the need for careful monitoring and potential adjustments in policy as the economic environment evolves.
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