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Manufacturing sector in U.S. contracts in November
REAL ECONOMY BLOG | December 01, 2023
Authored by RSM US LLP
The manufacturing sector contracted for the second month in a row in November as lower overall demand and persistent labor shortages took their toll, the Institute for Supply Management reported on Friday.
The overall index stayed unchanged at 46.7%, implying a decline. Any figure below 48.7% indicates a contraction.
We think that another key driver for the recent decline was the inventory buildup that took place this year as businesses prepared for the holiday season. Many respondents reported a higher-than-needed inventory level, which caused activities to slow.
If that turns out to be the case, we think the sector is poised for a rebound next year. At the same time, we don’t find the recent weakness in manufacturing sentiment a sign that a recession looms; most manufacturers are still doing much better than before the pandemic.
Hiring was much weaker in November as the employment subindex fell to 45.8% from 46.8%, most likely because of the auto workers strike and the overall shortage of labor.
That does not seem to signal a particularly good jobs report for the sector when the November jobs data is released next week. The prices paid component rose to 49.9%, still showing a slowdown but at a lower rate.
The takeaway
According to the most recent RSM US Middle Market Business Index survey, executives at middle market firms said they had already made preparations for a recession and that over the next six months they would increase investments in anticipation of a rebound.
Manufacturing has been heavily affected by high interest rates over the past two years. With investors and analysts anticipating that the Fed will lower rates next year, a rebound is only a matter of time in our opinion.
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This article was written by Tuan Nguyen and originally appeared on 2023-12-01.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/manufacturing-sector-in-u-s-contracts-in-november/
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