November 2014 ISM Manufacturing Survey Declines Insignificantly. Expansion Continues

The ISM Manufacturing survey continues to indicate manufacturing growth expansion with an insignificant decrease in the rate of growth. This survey should be considered good news as it reconfirms a rather strong report last month. Key internals improved.

The ISM Manufacturing survey index (PMI) declined from 59.0 to 58.7 (50 separates manufacturing contraction and expansion). This was above expectations which were 56.5 to 60.0 (consensus 57.8).

This index had been in a general uptrend since mid 2013 – but the three month trend relatively flat. This is the sixteenth month of expansion. The regional Fed manufacturing surveys were indicating growth in October, and now the ISM indicates manufacturing shows expansion in October also.

Relatively deep penetration of this index below 50 has normally resulted in a recession.

The noisy Backlog of Orders improved from 53.0 to 55.0 – and remains in expansion. Backlog growth is an indicator of improving conditions; a number below 50 indicates contraction. Backlog accuracy does not have a high correlation against actual data.

Excepts from the ISM release:

Economic activity in the manufacturing sector expanded in November for the 18th consecutive month, and the overall economy grew for the 66th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The November PMI® registered 58.7 percent, a decrease of 0.3 percentage point from October’s reading of 59 percent, indicating continued expansion in manufacturing. The New Orders Index registered 66 percent, an increase of 0.2 percentage point from the reading of 65.8 percent in October. The Production Index registered 64.4 percent, 0.4 percentage point below the October reading of 64.8 percent. The Employment Index grew for the 17th consecutive month, registering 54.9 percent, a decrease of 0.6 percentage point below the October reading of 55.5 percent. Inventories of raw materials registered 51.5 percent, a decrease of 1 percentage point from the October reading of 52.5 percent. The Prices Index registered 44.5 percent, down 9 percentage points from the October reading of 53.5 percent, indicating lower raw materials prices in November relative to October. Comments from the panel are upbeat about strong demand and new orders, with some expressing concerns about West Coast port slowdowns and the threat of a potential dock strike.

Of the 18 manufacturing industries, 14 are reporting growth in November in the following order: Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Furniture & Related Products; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; Machinery; Transportation Equipment; Nonmetallic Mineral Products; Petroleum & Coal Products; and Primary Metals. The only industry reporting contraction in November is Apparel, Leather & Allied Products.