ISM Manufacturing in Contraction; Expect Conditions to Worsen

US Manufacturing as measure by the November 2012 Manufacturing ISM Report On Business® is back in contraction.

The PMI™ registered 49.5 percent, a decrease of 2.2 percentage points from October's reading of 51.7 percent, indicating contraction in manufacturing for the fourth time in the last six months. This month's PMI™ reading reflects the lowest level since July 2009 when the PMI™ registered 49.2 percent. Comments from the panel this month generally indicate that the second half of the year continues to show a slowdown in demand; respondents also express concern over how and when the fiscal cliff issue will be resolved.

ISM at a Glance

Series Data	Nov Index	Oct Index	Percentage Point Change	Direction	Rate of Change	Trend (Months)
PMI™	49.5	51.7	-2.2	Contracting	From Growing	1
New Orders	50.3	54.2	-3.9	Growing	Slower	3
Production	53.7	52.4	1.3	Growing	Faster	2
Employment	48.4	52.1	-3.7	Contracting	From Growing	1
Supplier Deliveries	50.3	49.6	0.7	Slowing	From Faster	1
Inventories	45	50	-5	Contracting	From Unchanged	1
Customers' Inventories	42.5	49	-6.5	Too Low	Faster	12
Prices	52.5	55	-2.5	Increasing	Slower	4
Backlog of Orders	41	41.5	-0.5	Contracting	Faster	8
Exports	47	48	-1	Contracting	Faster	6
Imports	48	47.5	0.5	Contracting	Slower	4

Expect Conditions to Worsen

It's tough to pin this slowdown on hurricane Sandy although I suspect some will try. Others will blame the "fiscal cliff" but that theory does not have much credence either. After all, this is the 4th contraction in six months, long before Hurricane Sandy or fiscal cliff worries.

Instead, I propose global QE in the US, China, and Europe has finally played out for all that it's worth and then some. Note that export orders have contracted every month for six months, and the backlog of orders every month for 8 months.

Eventually, employment had to catch up with those trends and it did. Employment fell 3.7 percentage points to 48.4.

Production is up 1.3 percentage points but with new orders and exports slowing rapidly, don't expect that to last.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com