ISM Manufacturing Contracts 8th Month And The 24th Time In Last 25 Months -

ISM Manufacturing Contracts 8th Month And The 24th Time In Last 25 Months

Dec 02, 2024Jeremy ParkinsonFinance0

ISM chart and excerpts below by permission from the Institute for Supply Management® ISM®
Please consider the November 2024 Manufacturing ISM^® Report On Business^®
emphasis in bold by ISM, italics mine.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee.

“U.S. manufacturing activity contracted again in November, but at a slower rate compared to last month. Demand continues to be weak but may be moderating, output declined again, and inputs stayed accommodative. Positive signs for demand include the (1) New Orders Index returning to expansion territory, (2) New Export Orders Index increasing moderately (up 3.2 percentage points but still in contraction territory), (3) Backlog of Orders Index dipping further into strong contraction territory, and (4) Customers’ Inventories Index indicating levels were only marginally above ‘too low.’ (For more, see the Customers’ Inventories Index summary section.) Output (measured by the Production and Employment indexes) continued in contraction: Employment shrunk, but at a much slower rate, and production took a small step in the right direction. Foundational industries like Chemical Products and Fabricated Metal Products (that provide products and components across the manufacturing sector) continued to show weakness, indicating that recovery may still be two to three months away. Inputs — defined as supplier deliveries, inventories, prices and imports — generally continued to accommodate future demand growth, with inventories improving and suppliers continuing to improve delivery performance.

“Demand remains weak, as companies prepare plans for 2025 with the benefit of the election cycle ending. Production execution eased in November, consistent with demand sluggishness and weak backlogs. Suppliers continue to have capacity, with lead times improving but some product shortages reappearing. Sixty-six percent of manufacturing gross domestic product (GDP) contracted in November, up from 63 percent in October.

Respondent Comments

“High mortgage rates continue to hamper demand for new housing construction, which is a key market for adhesives and sealants.” [Chemical Products]

“Business remains slow. We anticipate that the first half of 2025 will be similar and hope that demand increases in the second half of 2025.” [Transportation Equipment]

“Inflation, even after easing, continues to impact demand. Consumers are looking for value, and purchasing behaviors are changing as many shoppers reduce consumption, causing softer volume.” [Food, Beverage & Tobacco Products]

“Backlog is rising precipitously after 18 months of troughing. The long-awaited pent-up buying has started. Competition for qualified technical labor is a constraint on operational throughput.” [Computer & Electronic Products]

“A general construction slowdown in the fourth quarter has created a surplus of finished goods, creating the need for an extra two weeks of shutdown over the Christmas holiday period. We are carefully watching demand in the first quarter to determine if more permanent workforce reductions will be necessary.” [Machinery]

“Business is slowing as customers destock and appear uncertain about near-term demand. Preliminary forecast for 2025 is down significantly; we hope to see improvements now that we are beyond U.S. election uncertainties.” [Fabricated Metal Products]

“Our supplier has a positive outlook on the U.S. economy going into 2025. Our business is seeing an uptick in sales forecasts for the first quarter of 2025 versus the fourth quarter of 2024. Overall, our outlook for 2025 is optimistic.” [Textile Mills]

“We’re finally seeing traction in the last few weeks (with) a higher volume of orders. Backlog is starting to grow.” [Electrical Equipment, Appliances & Components]

“Late to the game, we are now working on our buying plan in light of potential increased tariffs on imports from China. Cost and capacity of U.S. manufacturing is a concern; a lack of relationship with alternate low-cost international manufacturers is another.” [Miscellaneous Manufacturing]

“After the election, we have seen an uptick in customers wanting to come back to the U.S. for making their products. We are working through these inquiries. They seem very motivated.” [Primary Metals]

Negative and Positive CommentsNegative Comments: 1, 2, 3, 5, 6, 9Positive Comments: 4, 7, 8, 10
Scrambling to Avoid TariffsPlease note the improvement in inventories from 42.6 to 48.1. A scramble to get ahead of tariffs is underway.Number 9 is interesting: “Late to the game, we are now working on our buying plan in light of potential increased tariffs on imports from China. Cost and capacity of U.S. manufacturing is a concern; a lack of relationship with alternate low-cost international manufacturers is another.” Businesses late to the game may have thought Kamala Harris would win. Regardless, in light of Trump tariffs, all importers are scrambling to locate “alternate low-cost” suppliers.These actions will shift imports, not reduce them. And shifting supply chains, in and of itself, increases costs.
Electronic Products

Point four is interesting. “Backlog is rising precipitously after 18 months of troughing.” The source of that comment was Computer & Electronic Products

Point 8, was also a positive comment on backlogs. “We’re finally seeing traction in the last few weeks (with) a higher volume of orders. Backlog is starting to grow.” That comment was in a related industry group, Electrical Equipment, Appliances & Components.

Meanwhile, the backlog index further contracted to 41.8 as shown in the lead chart.Perhaps points 4 and 8 are outliers, but it could be something with chips or AI, or alternatively point number 9 once again.
ConclusionThe manufacturing index improved slightly in that it is less negative, but the only strength is suspect.Some manufactures are scrambling to find alternative suppliers. Others are stockpiling made in China to avoid tariffs.
Trumpian Tariff Blast ComingNothing good will come from a Trumpian tariff blast.For discussion, please see Trump’s Obvious Bluff Over BRICS Currency Proves He Is Clueless on TradeTrump’s big problem is that he does not understand what’s driving trade. Tariffs won’t fix it.For discussion, please see the above link.More By This Author:Trump’s Obvious Bluff Over BRICS Currency Proves He Is Clueless On TradeContinued Unemployment Claims Increase Another 9,000, It’s Recession LookingAir Cargo Flights From China Jumps 73 Percent In Mad Rush To Avoid Trump’s Tariffs