The manufacturing sector contracted for the second month in a row In November as lower overall demand and persistent labor shortages took their toll, the Institute for Supply Management reported on Friday.
The overall index stayed unchanged at 46.7%, implying a decline. Any figure below 48.7% indicates a contraction.
We think that another key driver for the recent decline was the inventory buildup that took place this year as businesses prepared for the holiday season. Many respondents reported a higher-than-needed inventory level, which caused activities to slow down.
If that turns out to be the case, we think the sector is poised for a rebound next year. At the same time, we don’t find the recent weakness in manufacturing sentiment a sign that a recession looms; most manufacturers are still doing much better than before the pandemic.
Read more of RSM’s insights on manufacturing and the middle market.
Hiring was much weaker in November as the employment subindex fell to 45.8% from 46.8%, most likely because of the auto workers strike and the overall shortage of labor.
That does not seem to signal a particularly good jobs report for the sector when the November jobs data is released next week. The prices paid component rose to 49.9%, still showing a slowdown but at a lower rate.
The takeaway
According to the most recent RSM US Middle Market Business Index survey, executives at middle-market firms said they had already made preparations for a recession and that over the next six months they would increase investments in anticipation of a rebound.
Manufacturing has been heavily affected by high interest rates over the past two years. With investors and analysts anticipating that the Fed will lower rates next year, a rebound is only a matter of time in our opinion.
