(Bloomberg) -- US manufacturing activity shrank in November by less than forecast as a gauge of new orders moved into expansion territory for the first time in eight months and indicated business confidence is gradually improving.
The Institute for Supply Management’s factory gauge rose 1.9 points, the most since March, to 48.4, data out Monday showed. The median projection in a Bloomberg survey of economists called for an index of 47.5. While the latest figure marked an eighth straight month of contraction with a reading below 50, most categories that feed into the overall index showed improvement.
The advance in November left the purchasing managers gauge at the highest level since June, suggesting manufacturing is stabilizing after a two-year downturn. The new orders gauge climbed 3.3 points, the most in five months and a sign of budding optimism following the presidential election.
“Demand continues to be weak but may be moderating, output declined again, and inputs stayed accommodative,” Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, said in a statement.
Eleven manufacturing industries reported contraction last month, led by printing, plastics and rubber, and chemical products. Three industries expanded.
While measures of production activity and factory employment remained in contraction territory, both gauges improved. The ISM manufacturing employment index rose 3.7 points, the most in more than two years, to 48.1 in November.
Prices Paid
Another favorable sign for producers are waning materials costs. The group’s prices-paid index fell 4.5 points to 50.3, well below the 2024 average and an indication that overall costs are more manageable.
That may help shore up confidence goods prices in the economy will remain tame. Still, data out last week showed that the Federal Reserve’s preferred measure of underlying inflation accelerated in October from a year ago, bolstering the case that officials may be in no rush to cut interest rates.
The ISM report also showed a 5.5-point increase in the factory inventories index to 48.1, a month after shrinking at the fastest pace since June 2012. The improvement suggests that the sharp trimming of inventories by producers in September and October may have run its course. That may help further boost orders and fuel production.
Select ISM Industry Comments
“High mortgage rates continue to hamper demand for new housing construction, which is a key market for adhesives and sealants.” — Chemical Products
“Business remains slow. We anticipate that the first half of 2025 will be similar and hope that demand increases in the second half of 2025.” — Transportation Equipment
“Backlog is rising precipitously after 18 months of troughing. The long-awaited pent-up buying has started.” — Computer & Electronic Products
“A general construction slowdown in the fourth quarter has created a surplus of finished goods, creating the need for an extra two weeks of shutdown over the Christmas holiday period. We are carefully watching demand in the first quarter to determine if more permanent workforce reductions will be necessary.” — Machinery
“Business is slowing as customers destock and appear uncertain about near-term demand. Preliminary forecast for 2025 is down significantly.” — Fabricated Metals
“Our supplier has a positive outlook on the US economy going into 2025. Our business is seeing an uptick in sales forecasts for the first quarter of 2025 versus the fourth quarter of 2024. Overall, our outlook for 2025 is optimistic.” — Textile Mills
“We’re finally seeing traction in the last few weeks (with) a higher volume of orders. “ — Electrical Equipment & Appliances
“After the election, we have seen an uptick in customers wanting to come back to the US for making their products. We are working through these inquiries. They seem very motivated.” — Primary Metals
The increase in new orders is a welcome change for manufacturers as the backlog of orders fell once again in November to the lowest level since July. Order backlogs have been contracting every month since September 2022.
--With assistance from Chris Middleton.
(Adds select comments from ISM respondents)
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