The November Purchasers Manger’s Index posted a score of 58.2, falling 0.5 point month on month, (m/m) and a bit lower than analysts’ expectations. Despite the decline, the index remains at elevated levels. The new orders index climbed 0.6 point to 64.0, its six month in a row over 60. The index remains in line with its third quarter average but above its first half average of 56.4. Conditions are favorable for the index to record further gains heading into the first quarter of 2018.
The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary.
Figure 1 shows the history of the ISM manufacturing index from 2003 to present. The index is solidly in the expansion zone, where it has been for 15 consecutive months. On a 3 month moving average, (3MMA) basis, the index posted a value 59.2, up 13.5%, 3 months year on year (y/y). When examined on a 12MMA y/y comparison, the index increased by 12.2% y/y.
Table 1 breaks down the detail of the composite index and sub-indexes. The composite index score of for November 58.2 was 0.8 point higher than its year to date average, one year ago the composite index was 53.2.
Momentum (3 month y/y value minus the 12 month y/y value), was positive in five of the nine categories that we monitor. The composite index momentum was +1.3%. Production posted momentum of +0.4%. New orders momentum came in at a strong +4.5%. The employment sub-index momentum recorded a gain of +1.3%. Import momentum dropped -0.5% as export momentum fell 2.6%, (we consider this a positive). Inventory momentum was -3.9% and backlog momentum posted +0.6%.
Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index slipped one point m/m to 47.0 in November. ISM notes that an inventory index greater than 42.9 points is consistent with expansion in the Bureau of Economic Analysis’ figures for overall manufacturing inventories.
The production sub-index jumped 2.9 points to 63.9, a very strong performance. An index above 51.4, is consistent with an increase in the Federal Reserve Board’s industrial production figures. There were 14 industries that reported growth in production during November, the same as in October.
The employment index dipped 0.1 point to 59.7, still a solid number. Eleven industries reported growth in production during November while two noted a decline.
The prices paid sub-index was off 3.0 points m/m to 65.5. Commodities moving up in price include: aluminum, copper, nickel based alloys and plastics. Items listed in short supply included; capacitors, resistors. Labor was not listed as being in short supply as it is in the non-manufacturing data.
New export orders fell 0.5 point m/m to 56.5. New import orders rose from 0.5 point m/m to 54.5. The difference between new export and import orders indicates that trade was a drag on growth this quarter.
November’s ISM manufacturing report was generally positive with the promise of continuing strong performance for manufacturing the coming months and quarters.
At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.