U.S. Factories Extend Contraction as Index Misses Forecasts

(Bloomberg) --

America’s industrial heartbeat remained faint in November as a measure of manufacturing contracted for a fourth straight month against a backdrop of weaker orders and subdued production. U.S. stocks headed for their worst decline in more than a month.

The Institute for Supply Management data on Monday showed the factory purchasing managers’ index unexpectedly declined to 48.1, near the expansion’s low point, from 48.3. The median forecast in a Bloomberg survey of economists called for an improvement to 49.2. Readings below 50 indicate activity is shrinking.

The figures show the manufacturing sector, while no longer in freefall, lacks upward momentum in an environment of corporate investment cutbacks, subdued global demand and a still-simmering U.S.-China trade war.

“This episode of manufacturing weakness feels similar to the 2015-16 period, when a strong dollar and a soft global economy led to a mini-recesion in the factory sector rather than a full-blown economic downturn,” Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note. “The overall tone, while weak, is one of slogging through the mud rather than falling off a cliff.”

In addition, factory gauges in China and Germany suggested the worst may be over for the sector. A global PMI out Monday from JPMorgan and IHS Markit rose to 50.3 in November from 49.8, representing the first expansion since April, as orders reached the highest level in 2019. The gain was partly due to the U.S. PMI also issued Monday by IHS Markit, which advanced to a seven-month high of 52.6 in November, contrasting with the ISM survey.

That’s in line with a government report last week that business-equipment demand climbed in October by the most in nine months, which should help keep the U.S. expansion going amid tepid consumer spending.

Still, the ISM’s measure of factory orders declined in November after consecutive gains and, at 47.2, matches the lowest readings of the expansion. While 20.5% of respondents -- the same as in October -- reported higher orders, the share indicating lower bookings increased by 2.7 points to 31.2%. These figures signal that the surprise jump in the government’s October reading for capital goods orders and shipments may not be sustained.

Thirteen industries, including wood products, furniture, textiles and fabricated metals, reported that business shrank in November.

A separate report from the Commerce Department on Monday gave another sign of possible economic weakness: Construction spending in the U.S. fell 0.8% in October from the prior month, compared with projections for a gain, and September’s figure was revised to a decrease from an increase. The value of private construction was at the lowest level in three years.

Factory Employment

The ISM’s survey indicated a deeper decline in factory employment, while the gauge of order backlogs dropped to its lowest level since January 2016. That helps explain why factories can operate with leaner staffing. The group’s gauge of production, while rising for the first time since June, contracted for a fourth month.

An ISM measure of exports, after expanding in October for the first time in four months, fell back into contraction. The imports gauge also signaled a contraction, albeit a milder one than a month earlier.

The gauge of supplier deliveries was the only component above 50, indicating shipments of inputs are slowing.

An index of prices paid contracted for a sixth straight month, a sign that weak demand is holding down inflation.

--With assistance from Kristy Scheuble, Jeff Kearns and Alex Tanzi.

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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