The Institute for Supply Management’s purchasing managers’ index (PMI) moved lower in November, falling once again into contraction territory. The PMI fell from 51.7 in October to 49.5 in November. It is clear that worries about slowing sales and the fiscal cliff are having an impact. Additionally, the Mid-Atlantic region was likely affected by Hurricane Sandy.

Many of the subcomponents of this measure reflected a worsening of conditions in the past month. For instance, the index for new orders declined from modest growth (54.2) to essentially neutral (50.3). Reduced export sales were likely a factor in this decline, falling from 48.0 to 47.0, but easing domestic sales were probably also to blame. Surprisingly, the pace of production edged slightly higher in November, up from 52.4 to 53.7. However, this could be short-lived given the slowing of new sales.

Later this week, we will learn about hiring in the manufacturing sector both from ADP on Wednesday and the Bureau of Labor Statistics on Friday. The ISM figures suggest that these numbers will be weak, or potentially declining. Indeed, the index for employment dropped from 52.1 to 48.4, suggesting that more manufacturers are reducing their staffs than hiring during the month. It is the first time that this index has contracted in over three years. To demonstrate the extent to which net hiring has diminished, the employment index stood at 56.9 just six months ago in May.

The sample comments that were provided help frame the decreased levels of optimism in this month’s report. The concerns range from worries about the global environment to the U.S. fiscal situation. As one fabricated metal products company wrote, “The fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed…” Regarding international sales, a chemical manufacturer added, “Global economic uncertainty still seems to be sticking around, which is not necessarily making things worse, but it is also not making things better from a demand standpoint.”

A food manufacturer said that their business was in a “lull” right now.  That pretty much describes how many business leaders feel, with most of them frustrated with our political leaders for failing to avert the fiscal cliff up to this point.  Hurricane Sandy also played its part in reducing activity. But, based on the statements in the ISM survey as well as with the several manufacturers that I spoke with last week, business leaders are extremely nervous about the future direction of the economy.

Chad Moutray is chief economist, National Association of Manufacturers.

 

 

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