Following two months of modest expansion, activity in the U.S. manufacturing sector unexpectedly contracted in the month of November, according to a report released by the Institute for Supply Management on Monday.
The ISM said its purchasing managers index fell to 49.5 in November from 51.7 in October, with a reading below 50 indicating a contraction in manufacturing activity. The drop surprised economists, who had expected the index to come in unchanged compared to the previous month.
With the unexpected decrease, the purchasing managers index fell to its lowest level since coming in at 49.2 in July of 2009.
Bradley Holcomb, chair of the ISM Manufacturing Business Survey Committee, said, "Comments from the panel this month generally indicate that the second half of the year continues to show a slowdown in demand; respondents also express concern over how and when the fiscal cliff issue will be resolved."
The report showed that the new orders index dropped to 50.3 in November from 54.2 in October, although the reading above 50 indicated continued new orders growth.
The employment index fell to 48.4 in November from 52.1 in October, hitting its lowest level since September of 2009. The reading below 50 points to a drop in employment in the manufacturing sector.
The ISM also said the inventories index slid to 45.0 in November from 50.0 in October, while the backlog of orders index edged down to 41.0 from 41.5.
On the other hand, the production index climbed to 53.7 in November from 52.4 in October, indicating production growth for the second consecutive month.
"Bottom line, lackluster still defines the state of manufacturing due to the issues well known," said Peter Boockvar, managing director at Miller Tabak. "However, we know the hurricane had a pronounced impact on the economies of the northeast as seen in the N.Y. and Philly manufacturing regions."
He added, "Today's ISM unfortunately can't break it out to give us a better feel for the rest of the country but we know from other regional survey's separate from the Northeast that things are just so-so."
With regard to inflation, the report showed that the prices index fell to 52.5 in November from 55.0 in October, pointing to a slowdown in the pace of price growth.
On Wednesday, the ISM is due to release a separate report on activity in the U.S. service sector in the month of November. Economists expect the index of activity in the sector to dip to 53.6 from 54.2 in the previous month.
by RTT Staff Writer
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