U.S. Manufacturing Activity Expands; Business Optimism on the Rise in November

“Our business is booming, as many customers need products ASAP. A great situation.”

U.S. manufacturing activity eased back slightly in November after hitting a two-year high in October, according to the Institute for Supply Management’s monthly Report on Business. According to the ISM, industrial activity inched down 1.8% in November, to a still expansionary reading of 57.5%.

Notably, November’s manufacturing activity report reveals a still expanding industrial sector and marks the seventh straight month of expansion for the economy overall.

New orders and production continued to expand in November, though employment contracted over the month. Both imports and exports continue to grow, while supplier deliveries are slowing at a faster rate.

Optimism among manufacturing executives has hit its strongest level since the pandemic, with 2.5 positive comments registered for every cautious comment.

Said Timothy Fiore, Chairman of the ISM: “The manufacturing economy continued its recovery in November. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that will likely limit future manufacturing growth potential.”

One executive in the food, beverage and tobacco products industry stated, “We are getting a lot more COVID-19 hits in our factories. We are also sending employees home for 14 days to quarantine if they were in close proximity to individuals that tested positive. We have had to shut down production lines due to lack of staffing. Cost of goods sold [COGS] is much higher than normal due to labor and production inefficiencies.”

Of eighteen industries, sixteen reported growth in November. Growth was led by apparel, leather & allied products; nonmetallic mineral products; textile mills, wood products, electrical equipment, appliances & components, and fabricated metal products.

Printing and related support activities and petroleum/coal products were the only two industries to post contraction.

New Orders Still Expanding – But at a Slower Rate

The New Orders Index, which has been surging during the recovery, edged back 2.8% in November after surging 7.7% in October. The new orders index now stand at a level of 65.1%, well into expansion.

One respondent on the fabricated metal sector reports ““We will finish out the fourth quarter very strong. Customers have increased demand and 2021 is expected to continue to grow.”

Another in the machinery sector reported “Business continues to be strong, with significant back-orders. Suppliers have struggled to hire people, as we have to support the increased business. We are seeing significant delays in getting parts and material from China through U.S. ports, especially [at the Port of] Long Beach. Material costs continue to hold steady. The national election and continued COVID-19 uncertainty are concerns.”

Yet another in the primary metals sector stated “Our business is booming, as many customers need products ASAP. A great situation.”

Fifteen of eighteen industries reported an uptick in new orders for November, led by apparel, leather & allied products; plastics & rubber products; textile mills; wood products and electrical equipment.

Manufacturing Production Edges Down

The ISM’s Production Index eased back 2.2% to a reading of 60.8% in November, indicating that manufacturing production is still growing, but at a slower rate than last month. November’s reading represents a sixth straight month of growth for manufacturing production.

Fourteen of eighteen industries reported growth in output, led by apparel, leather & allied products; textile mills; wood products and paper products.

Employment Steps Back From October’s Expansion

The employment index has been one of the soft spots in the otherwise stellar ISM reports over the past several months. In October, the ISM’s employment index finally broke into expansion, hitting a level of 53.2%. However, in November, employment stumbled back into contraction, hitting a level of 48.4%.

Many manufacturers expressed COVID-19-related employment issues, suggesting that the pandemic’s impact on the workforce may be contributing to the contractionary reading in employment.

Said Fiore, “For the third straight month and with increased frequency, survey panelists’ comments indicate that significantly more companies are hiring or attempting to hire than those reducing labor forces."

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