Raw Finance

The manufacturing section showed growth for a fourth consecutive month in November, but the pace of growth slowed.  The Institute for Supply Management™ released its monthly Manufacturing ISM Report On Business^® reading 53.6 for November 2009, down from the October reading of 55.7.

A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.  With regard to the overall economy, a reading above 41.2 over time over a period of time generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the seventh consecutive month in the overall economy, as well as expansion in the manufacturing sector for the fourth consecutive month.

In November, 13 of the 18 manufacturing industries reported growth—the 12 are listed in order as follows: Apparel, Leather & Allied Products; Printing & Related Support Activities; Petroleum & Coal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Transportation Equipment; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; Fabricated Metal Products; and Machinery.

The following 5 industries reported contraction in November: Wood Products; Furniture & Related Products; Nonmetallic Mineral Products; Primary Metals; and Plastics & Rubber Products.

According to comments from the industries, concerns about the sinking value of the dollar seem to outweigh optimism over recent growth:

• “Becoming concerned about the value of the U.S. dollar.” (Apparel, Leather & Allied Products)
• “Low value of the dollar driving commodity costs higher.” (Food, Beverage & Tobacco Products)
• “Demand from automotive manufacturers remains strong and building.” (Fabricated Metal Products)
• “Capital construction seems to be picking up, and we are seeing more jobs that are bid out.” (Electrical Equipment, Appliances & Components)
• “Steady increase in business.” (Primary Metals)

The dollar concerns may turn out to be a catalyst for the Fed raises its federal funds rate in the months to come.  These concerns also speak to the larger problem of banks and investors seeking higher yield in riskier assets like commodities, thus driving up prices for producers.

On the employment front, the survey reported slight growth at 50.8 in November.  The pace was down from October’s 53.1, reading, but this marked the second consecutive month of employment growth following 14 straight months of decline.  So, hopefully the tide is turning on employment, and perhaps we will begin to see that show up in ensuing employments figures from the Bureau of Labor Statistics.

With regard to inventories, respondents to the survey continue to believe that their customers’ inventories are too low.  That belief has firmed over the last 8 months, suggesting more room for growth.  Inventories will be an ongoing story, however.  Since almost all businesses have cut costs as far down as possible, the only room they have left to keep costs down is to hold inventory down.  Until producers and retailers become comfortable that demand for their products is building and begin restocking, inventories will remain depressed, and this will hamper the nascent economic recovery.  Therefore, monitoring inventory numbers is more important for our forecasting than ever.

Export orders rose slightly to 56, the highest reading since August 2008. Prices paid fell 10 points to the lowest level since July 2009. The ISM concluded that “the recovery in manufacturing is continuing (with 12 of 18 manufacturing industries reporting growth), but many are still struggling based on their comments.”

For more data on the Manufacturing ISM Report On Business^® please click on the “Economic Growth Statistics” page on the menu bar above.  Then scroll down to the bottom of the page.  There you will find additional information form the report plus a link to the report on the ISM’s Web site.