U.S. Manufacturing Sector Continues Contraction Amid Modest Improvements in Key Indicators

Ongoing Contraction with Signs of Slower Decline
U.S. manufacturing activity contracted again in November, marking the eighth consecutive month of decline, according to the latest Report on Business from the Institute for Supply Management (ISM). The Manufacturing Purchasing Managers’ Index (PMI) increased slightly by 1.9 percentage points to 48.4%, but it still remains below the neutral 50% threshold, indicating a continued contraction. This is the 24th time in the past 25 months that manufacturing activity has contracted, underlining persistent challenges within the sector.

Key Indicators Show Mixed Performance
Despite the overall contraction, several key indicators showed signs of improvement in November. The New Orders Index, a key gauge of future demand, returned to expansion at 50.4%, marking a 3.3 percentage point increase from October. This improvement suggests that the decline in demand may be moderating. The Production Index also saw a slight uptick to 46.8%, signaling a minor recovery in output. Additionally, the Employment Index increased by 3.7 percentage points to 48.1%, suggesting a modest rebound in labor demand, although it still points to contraction.

Weak Demand and Continued Decline in Output
Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, explained that while manufacturing activity contracted in November, it did so at a slower pace compared to the previous month. He highlighted that demand remains weak across the sector but may be stabilizing. Output continued to decline, though at a slower rate, and input costs have remained relatively accommodative, suggesting less pressure on supply chains.

Limited Growth in Industries, Fabricated Metal Products Struggles
The November data showed that only three manufacturing industries reported growth, with none of them being closely tied to the metals sector. Fabricated metal products, a major industry for metals, was one of the 11 industries that reported contraction. This indicates that despite the modest uptick in some key indices, the metals sector, including steel and aluminum, continues to face challenges with weak demand and ongoing production cuts.