After skirting right at the breakeven 50 line since September, ISM's manufacturing index broke below in November to 48.6 which is more than 1 point below Econoday's low-end estimate for the lowest reading since June 2009. The decline includes a significant dip for new orders which are down 4.0 points to 48.9 and the lowest reading since August 2012. At 43.0, backlog orders are in a six-month streak of contraction. With orders down, ISM's sample cut back on production, down nearly 4 points to 49.2, and cut back on inventories, down 3.5 points to 43.0. Employment firmed but remains soft at 51.3.Glimmers of Hope Extinguished
A convincing detail in the report is the breadth of weakness with only five of 18 industries reporting composite growth in the month. Transportation equipment, getting a boost no doubt from aircraft and motor vehicles, is among those in the plus column while the negative column includes petroleum as well as a number of capital goods industries including machinery, primary metals, and fabricated metals. Weakness in these industries points to weakness in business expectations.
Exports have been the Achilles heal [heel] of the factory sector all year. New export orders in this report held steady at 47.5 for the sixth straight sub-50 reading. Another weak detail is a second month of contraction for import orders (49.0) which are suffering their worst run in four years. Prices paid remains in deep contraction at 35.5.
The ISM index came in at 50.2 last month, vs. a consensus estimate of 50.0, providing economists with glimmers of hope.
Economists then did what they normally do, which is take the prior reading and expect the next month to be better, explaining this month's consensus guess of 50.5.
ISM 2007-2015
That was the lowest reading since June 2009. But don't worry, there's no recession warning here, just glimmers of hope.
And with that hope, let's further dive into the numbers straight from the ISM Report.
| Index | Nov | Oct | PP Change | Direction | Rate of Change | Trend in Months |
|---|---|---|---|---|---|---|
| PMI® | 48.6 | 50.1 | -1.5 | Contracting | From Growing | 1 |
| New Orders | 48.9 | 52.9 | -4.0 | Contracting | From Growing | 1 |
| Production | 49.2 | 52.9 | -3.7 | Contracting | From Growing | 1 |
| Employment | 51.3 | 47.6 | +3.7 | Growing | From Contracting | 1 |
| Supplier Deliveries | 50.6 | 50.4 | +0.2 | Slowing | Faster | 4 |
| Inventories | 43.0 | 46.5 | -3.5 | Contracting | Faster | 5 |
| Customers' Inventories | 50.5 | 51.0 | -0.5 | Too High | Slower | 4 |
| Prices | 35.5 | 39.0 | -3.5 | Decreasing | Faster | 13 |
| Backlog of Orders | 43.0 | 42.5 | +0.5 | Contracting | Slower | 6 |
| Exports | 47.5 | 47.5 | +0.0 | Contracting | Same | 6 |
| Imports | 49.0 | 47.0 | +2.0 | Contracting | Slower | 2 |
Key Points
- New orders, production, PMI Index in contraction
- Backlog of orders in contraction 6 months
- Exports in contraction 6 months
- Prices in contraction 13 months
There's nothing in the ISM report to make the Fed want to hike, but the Fed will do what they want.
Mike "Mish" Shedlock
