Mixed Signals from U.S. Manufacturing Surveys in November
In November, two key surveys regarding U.S. manufacturing activity showed starkly different results. One indicated ongoing growth, while the other pointed to a worsening contraction, which raises concerns about the sector’s overall health amidst the evolving landscape of global trade.
The S&P Global U.S. Manufacturing PMI registered at 52.2, remaining above the 50 mark that signifies growth for the fourth month in a row, although it dipped slightly from 52.5 in October.
On the other hand, the ISM Manufacturing PMI reported a decline to 48.2 from 48.7 in October, reflecting its ninth consecutive month of negative growth. This divergence suggests that the manufacturing environment is quite complex and varied.
Both surveys, however, highlighted a concerning trend: despite a lack of demand, manufacturers increased production in November, leading to a significant rise in unsold inventory. According to S&P Global, this increase in warehouse stock is the largest seen in nearly 19 years, even as companies reported lower-than-expected sales.
“Manufacturers are producing more, but they can’t find buyers,” noted Chris Williamson from S&P Global Market Intelligence. “This unplanned inventory growth often signals reduced production in the forthcoming months.”
Additionally, the ISM survey indicated that new orders fell for the third month in a row, dropping to 47.4 from 49.4 in October. While S&P Global noted a slowdown in demand growth, its figures still showed some expansion.
Export performance was another area of weakness in both surveys. The ISM noted new export orders at 46.2, signaling negative growth for nine months, while S&P Global reported a steep decline in export orders since July due to decreased sales to both neighboring countries and key Asian economies.
Employment Trends: Conflicting Reports
Employment data from the surveys presented a mixed picture. S&P Global saw employment growth reach a three-month high, whereas the ISM noted a contraction, with employment figures dropping to 44.0—down 2 points from October—and marking the 10th month of decline. ISM reported that 67% of its participants were managing employee numbers rather than hiring.
This contrast might stem from the make-up of the survey panels. ISM tends to feature larger manufacturers with a broader international presence, while S&P Global includes various businesses, including smaller domestic-focused companies.
Considering the global demand landscape, this distinction could be significant. Economic growth in Europe has been sluggish, with the eurozone’s growth at just 0.2% in the third quarter. More critically, EU exports to the U.S. dropped over 25% in August due to new tariffs, and GDP growth has stalled in Germany and Italy—key players in manufacturing.
This suggests that the two surveys might reflect different aspects of the manufacturing sector, with larger, export-oriented companies struggling more than their smaller domestic counterparts.
Impact of Tariffs on Costs and Profits
Both surveys noted that tariffs are raising input costs, particularly for metals. However, manufacturers are finding it challenging to pass these costs onto consumers. S&P Global reported the lowest sales price inflation this year, attributing it to intense competition and weak demand.
Responses from ISM survey participants indicated growing tension and uncertainty. One manufacturer in transportation said they had to implement job reductions and shift production offshore, originally intended for U.S. exports.
“Supply chain uncertainty now feels tougher than during the pandemic,” remarked an electrical equipment manufacturer, while a company in the wood products sector mentioned that inconsistency from Washington is undermining their plans.
ISM also reported improvements in delivery times, with supplier delivery measures changing from 54.2 to 49.3. Though this reflects some resolution of earlier customs delays, faster deliveries could indicate that suppliers are becoming less busy, hinting at weaker demand through the supply chain.
Growing Concerns Over Economic Recession
The significant increase in inventory reported by S&P Global raises red flags. Typically, when manufacturers produce more than they can sell, they cut back on production in subsequent months, potentially leading to job losses and contributing to a wider economic downturn.
ISM pointed out a related worry: customer inventory levels were at 44.7, suggesting they are “too low.” Normally, this would indicate strong demand as customers replenish stock. Still, a decline in new orders reveals a hesitance on the part of customers to increase inventory even as it is running low, indicating caution surrounding future demand.
Despite some recent weaknesses, both surveys noted an uptick in business confidence. S&P Global found optimism at its highest since June, with manufacturers hopeful for better policy support, lower interest rates, and greater political stability as the government shutdown ends.
Still, S&P Global cautioned that “uncertainty remains high,” which is hindering growth for many firms, and confidence levels are still far from the beginning of the year.
The mixed signals make the manufacturing outlook uncertain. Even while production appears positive in both surveys, weak new orders, rising inventories, and sluggish export demand hint at potential challenges, especially for firms reliant on international trade.
