Manufacturing Activity Strengthens Further In November - December 1, 2011
It seems that relatively good news keeps coming on the U.S. economy. We saw improvements in some housing categories and there were gains in industrial production followed by word that Black Friday and the follow-up Cyber Monday had exceeded expectations at a number of the nation's retail establishments. Finally, yesterday, we received word that private-sector payrolls had increased by 206,000 in November, according to a survey conducted by ADP (ADP). Now, this morning, the Institute for Supply Management has reported that manufacturing activity had strengthened further in November.
In all, that trade group reported that such metrics came in at 52.7 last month. That exceeded the consensus estimate of 51.5. It was also better than the prior month's 50.8 reading. We remind our readers that an ISM score above 50.0 signals that this group believes the manufacturing sector is expanding; a survey result below 50.0, but above 42.0, implies that manufacturing is contracting, but that the overall economy is improving. Scores below 42.0 are believed by the Tempe, Arizona-based group to signal that a recession is under way.
It should be noted that this was the 28th month in a row that manufacturing has expanded. The aggregate economy, meanwhile, has now grown for 30 straight months, albeit at times very gingerly.
Taken as a whole, the report was somewhat better than forecast. As for individual components, we saw that new orders had perked up notably last month, coming in at 56.7 from 52.4 in October. Other improvements were seen in production (56.6 versus 50.1), in customer inventories (50.0 versus 43.5), and in exports (52.0 versus 50.0).
On the other hand, employment weakened a bit, coming in at 51.8, down from October's reading of 53.5. Also, supplier deliveries fell just below the watershed 50 reading, coming in at 49.9 down from 51.5. Prices, however, eased less than in the prior month, scoring 45.0, which was up from 41.0 in October. However backlogs fell further, easing to 45.0 from 47.5 in the previous month.
As for the various respondents to the survey, we noted comments, such as in chemicals where business was still holding its own, but that there were concerns that rising oil prices could affect this sector down the road. In primary metals, meantime, there were cautionary words about orders, although that might be related to the holidays.
All told, of the 18 industries surveyed, eight reported growth in November, led by wood products, textile mills, and petroleum and coal products. Nine industries reported a contraction in business during November, led by miscellaneous manufacturing, nonmetallic mineral products, and plastics and rubber products. All told, it was a decent report, with the latest month's reading being the highest since June's 55.3 level. For the past 12 months, the average score has been 55.6. Thus, while we did improve in November, we clearly have a ways to go before this sector can be considered healthy again.
At the time of this article's posting the author did not hold positions in any of the companies mentioned.