U.S. manufacturing slows down in November, report reveals

December 4, 2012

The Institute of Supply Management's latest report will be a troubling read  for U.S. manufacturers after the data released seem to indicate that activity slowed to almost a complete stop.

According to CNN, the release of the November report by the institute was highly anticipated by economists and business analysts after the industry expanded in October. Compiled through a nationwide survey of manufacturing managers, it is used as an indicator of strengths or weaknesses in the sector.

However, with the presidential election race over and the fears over a potential fiscal cliff, the report indicates that the sector is contracting, achieving a ranking of 49.5 in November which is the lowest level since July 2009. Any number below 50 is a sign of U.S. market contraction and with overseas markets such as China reporting that its index showed a 50.6 ranking, the data released on December 3 is a concern for U.S. manufacturers hoping that the economic recovery was still on track.

New orders for manufactured goods had also grown in October, a sign that global markets were keen to take advantage of a perceived negative attitude to total quality management in manufacturing in countries such as China and India. The cheap cost of energy and the return of consumer confidence in the automobile industry and housing markets had also boded well for U.S. manufacturers, but new manufacturing orders was essentially flat at 50.3.

"The fiscal cliff is the big worry right now," commented a manufacturer of fabricated metal products in the report. "We will not look toward any type of expansion until this is addressed. If the program that is put in place is more taxes and big spending cuts – which will push us toward recession – forget it."

Economists also note that the employment index revealed signs that companies have been cutting their factory workforce, an indication that there could be a move back towards lean manufacturing and a potential drop in the number of new jobs created. The October figures showed that 13,000 of the 171,000 jobs added to the overall U.S. economy came in manufacturing, but some analysts don't feel that this will be repeated in November.

"There is a skittishness on the part of many manufacturers to hire or to invest in the business," said Chad Moutray, chief economist for the National Association of Manufacturers, in an interview with CNN.