The U.S. manufacturing slump persisted in November with the ISM manufacturing index unchanged at 46.7, bucking expectations for a slight improvement. Manufacturing activity has now contracted for 13 consecutive months as it buckles under the weight of high interest rates and fading demand. The current streak of sub-50 readings, which indicates contraction, is the longest since the dot-com bubble burst.

The new orders sub-index improved to 48.3 but orders have contracted for 15 months, the longest stretch since 1981-82 when the Fed last raised interest rates aggressively. The drop in new orders pushed the production component into contraction territory after three consecutive months of expansion. Weaker demand allowed goods producers to speed up delivery times and clear backlogs with the latter's sub-index dropping nearly three points to 39.3. The prices paid sub-index jumped nearly five points but remains below the break-even level of 50.0, while the employment index slipped one point to 45.8, pointing to a contraction in manufacturing payrolls in November.

Bottom line: The manufacturing sector is likely to continue to struggle in a higher-for-longer rate environment with the Fed resolute in its quest to make sure inflation doesn’t re-accelerate. Moreover, the imminent slowdown in the U.S. economy—real GDP is forecast to slow sharply to a 1.0% annualized pace in the fourth quarter from 5.2% in Q3—after a long period of rapid interest rate hikes will also weigh on the demand for manufactured goods.

Table 1 - United States — ISM Manufacturing PMI

(percent reporting)

Source: BMO Economics, Haver Analytics

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