US Manufacturing Expands at Slower Rate in November

A gauge of U.S. manufacturing activity cooled modestly for the second straight month in November, but the reading still shows a strong factory sector.

The Institute for Supply Management on Friday said its manufacturing index fell to 58.2 in November, but remained solidly in a growth mode. A reading above 50 indicates activity is expanding across the factory sector, while a number below 50 signals contraction.

“It’s a really good performance,” said Timothy Fiore, head of the ISM survey. “Demand is coming from all sectors.”

Economists surveyed by The Wall Street Journal had expected a November reading of 58.0. The October level was 58.7. The September level of 60.8 was the highest for the index since May 2004.

The easing of the sector’s expansion last month was driven by a decrease in inventories and a slower rate of growth in deliveries from suppliers and export orders. Employment growth cooled just slightly.

But other components of the index show continued strength for manufacturing. Overall new orders are rising at faster rate, and production also sped up.

“This is typically the time of year where you see orders drop off and companies prepare for retooling,” Mr. Fiore said. “But we’re not seeing that. We’re seeing raw underlying demand.”

The latest data show the manufacturing sector is on a firm growth path heading into next year, now that factories have moved beyond distortions caused by hurricanes that struck the U.S. in last summer, he said.

Of the 18 manufacturing industries tracked, 14 grew last month, the report said. The machinery sector was particularly strong. Just two contracted; wood products and petroleum and coal products.

The ISM gauge is the latest measure showing solid growth for the manufacturing sector.

Orders for long-lasting durable goods, as tracked by the Commerce Department, are advancing this year at the best pace since 2014. That in part reflects stronger investment in equipment and machinery by U.S. businesses. The retrenching U.S. energy industry caused investment to slump in recent years. But as that sector bounced back, business confidence improved, and the global economy grew at a stronger rate in 2017, U.S. manufacturing has strengthened.

The survey showed raw-material prices for manufacturers advanced for the 21st straight month, though at a slower rate. The new data are consistent with other measures suggesting there may be inflation in the production pipeline. But so far it has been difficult for firms to fully pass those prices on to consumers.

The consumer-price index advanced 2% from a year earlier in October. Year-over-year price increases have eased since early this year. That could reflect that while the economy is growing and firms are adding jobs, wage gains have been soft, potentially limiting consumers ability to accept higher prices for goods.
Source: Dow Jones