NEW YORK (Reuters) - Manufacturing unexpectedly contracted in November, falling to its lowest in over three years in a sign the sector may be struggling to gain traction, according to an industry report released on Monday.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 49.5 in November from 51.7 the month before. The reading was shy of expectations of 51.3, according to a Reuters poll of economists.
A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 means expansion.
“Even though the report was a little worse than expected, falling below the pivotal 50 reading, it was partly storm related. The other factor was a big decline in inventories and you have to ask whether that’s bad. It’s not a bad thing if production dipped because there’s a mild inventory correction going on. You haven’t had a big drop in export orders. The market might be bracing for that and that hasn’t happened yet. The main factor is that a mild inventory correction is in process.”
“It is a surprise. It was expected to be down but only a little bit. The index is back below 50, although not by a whole lot at 49.5. There are two ways of looking at this — we had two months of growth and now we are back to contraction, that is one way. The other, which is a little more realistic is that since May the index has been very close to 50 and I think what we are seeing is that manufacturing has stalled and has yet to recover.”
“Who knows how much the storm might have affected these numbers? I’m sure there was some downward effect, but we won’t know until we start getting some clean data. I don’t think that explains everything. U.S. manufacturing is suffering from weak domestic demand and soft exports, and that was probably worsened by the storm. Globally, Europe is weakening clearly, Japan is going nowhere, and I don’t know what to make of wiggles in Chinese economic data, to be perfectly honest. The overall picture is certainly one of a weak global economy.”
STOCKS: U.S. stock pared gains and the Dow turned negative
BONDS: U.S. bond prices pared losses
FOREX: The dollar extended losses versus euro, Japanese yen
Americas Economics and Markets Desk; +1-646 223-6300