ISM Manufacturing Index Falls in November

• Factory activity weakens as coronavirus surges.

• New orders, production and employment series ease.

• Price index remains strong.

The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity fell to 57.5 during November and reversed roughly half of its October rise to 59.3. A decline to 57.6 had been expected in the Action Economics Forecast Survey. It was the sixth consecutive month above the break-even level of 50 following three months below it. During the last 15 years, there has been a 42% correlation between the composite index and the quarterly change in real GDP. Before the recession began, there had been a 67% correlation.

The ISM indicated, "The manufacturing economy continued its recovery in November. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that will likely limit future manufacturing growth potential."

The new orders index fell to 65.1 after rising in October to the highest level since January 2004. A lessened 36% (NSA) of survey respondents reported improved new orders while a higher 14% reported a decline. The production index weakened to 60.8, its lowest level in five months. A lessened 34% (NSA) of respondents reported higher production while an increased 14% reported a decline. The inventories index eased to 51.2, the second consecutive month of inventory accumulation since June. The supplier deliveries measure rose to 61.7 indicating slower rates of order fulfillment.

Also weakening during November was the employment measure which fell to 48.4 from 53.2 in October. It was the lowest reading in three months but still was increased from April's recession low of 27.5. A greatly lessened 15% (NSA) of respondents reported higher payrolls while a slightly higher 19% reported a decline.

Pricing power continued firm. The prices paid index was little changed at 65.4 (NSA) compared to April's low of 35.3. It was the highest level in roughly two years. A strengthened 37% of respondents reported higher prices compared to April's low of 10%. Six percent reported price declines, down from 39% in April.

Other series in the ISM report indicated improvement. The new export order measure rose to 57.8 from 55.7, remaining the highest level in roughly two years. The import series slipped to 55.1 but remained above the break-even level of 50 for the fifth consecutive month. The order backlog measure rose again and remained greatly improved from the April low.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

Coronavirus Aid, Relief, and Economic Security Act from Fed Chair Jerome H. Powell is available here.