United States: ISM manufacturing index rises in November on sharp upswing in domestic demand
December 3, 2018
The U.S. manufacturing sector gained steam in November after a softer performance in October. The Institute for Supply Management (ISM) manufacturing index rose from 57.7 in October to 59.3 in November, easily beating market expectations of a further fall to 57.2. The index remained comfortably above the 50-point threshold that separates expansion from contraction in the U.S. manufacturing sector, where it has been for 27 consecutive months.
The improvement in operating conditions in the month came largely on the back of stronger domestic demand which buttressed new order growth. Indeed, the new orders sub-index made strong gains in November, however new export orders were stable compared to October, signaling that all the gains in the month came from the U.S. market. In turn, the uptick in demand fed through to slightly higher output growth, larger increases in backlogs of work, a stronger rate of job growth, and a ramp-up in inventory levels. On the customer side, however, inventories continued to deplete, at a faster rate compared to October.
In another positive sign, the main supply-side indicators showed that the strains on U.S. manufacturers’ supply chains also eased in November. Supplier deliveries lengthened at a slower pace than in October. Meanwhile, input cost inflation, while still high, registered the largest decline of any sub-index in the month, indicating that upward price pressures abated significantly. Finally, import growth softened somewhat.
Survey respondents continued to be largely preoccupied by the impact of tariffs, and also noted increasing concern about finding qualified workers in a labor market that remains extremely tight by historical standards. One respondent for instance declared that “labor shortages in our area are affecting production volumes” while another noted that “shortages, longer lead times and capacity constraints […] and tariffs continue to strain the supply chain and disrupt normal business practices and activities.”
United States Industrial Production Forecast
FocusEconomics Consensus Forecast panelists expect industrial production to increase 2.5% in 2019, which is down 0.1 percentage points from last month’s forecast. In 2020, panelists see industrial production expanding 1.7%.
Author: Joffrey Simonet, Economist