Manufacturing is in recession.
Data on manufacturing activity in November was released on Tuesday morning, and it did not look good.
The Institute of Supply Management’s manufacturing index was a big miss, at 48.6, the lowest since June 2009.
It had been expected at 50.5, versus 50.1 prior. (A level below 50 indicates contraction; above 50, expansion.)
“Today’s report doesn’t tell us much more than we already knew: the manufacturing sector is being hit hard by both low oil prices and a stronger dollar — as evident by the contraction in manufacturing output in five of the first ten months of the year,” wrote BNP Paribas’ Bricklin Dwyer to clients.
Deutsche Bank’s Jim Reid wrote on Tuesday that the firm’s below-consensus ISM forecast of 49 was “based on the recent weakness in the NY and Philadelphia Fed surveys,” which were “consistent with a decline in factory activity but not the overall economy (for the overall economy to be contracting, the level of the manufacturing ISM would have to be near 43).”
Manufacturing makes up just 12% of the economy, and so it would be a misstep to read the data as a broad indicator. Ten out of 18 manufacturing industries reported contraction last month.
Markit Economics separately released its manufacturing purchasing manager’s index (PMI), which was 52.8, the lowest level in 25 months. The index was held down mostly by softer new business growth last month, and business conditions improved at the slowest pace in two years.
Demand for exports was weak, and new work from abroad fell for the first time since August. Employers became less willing to hire workers because they were less upbeat about demand in the near term, according to Markit. (The employment component of ISM’s index improved, however.)
Still, Markit chief economist Chris Williamson said the pace of manufacturing “remains encouragingly resilient, which is all the more impressive once headwinds such as the strength of the dollar and malaise in overseas markets are taken into account.”
Markit’s PMI had been expected to stay unchanged from the previous month, at 52.6, according to Bloomberg.