The November 2009 Manufacturing ISM Report On Business was released today. The report indicated expansion, but not as much as last month’s report. The ISM PMI (Purchasing Managers’ Index) came in at 53.6, down from 55.7 last month. This was below the Bloomberg consensus range of 53.8 to 56.0. The notes on employment and inventories are of primary interest to me. First, employment:
ISM’s Employment Index registered 50.8 percent in November, which is 2.3 percentage points lower than the 53.1 percent reported in October. This is the second month of growth in manufacturing employment following 14 consecutive months of decline. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
Six of the 18 manufacturing industries reported growth in employment in November in the following order: Textile Mills; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Transportation Equipment. The six industries that reported decreases in employment during November — listed in order — are: Wood Products; Primary Metals; Furniture & Related Products; Nonmetallic Mineral Products; Computer & Electronic Products; and Chemical Products.
Overall, manufacturing employment was up, barely. Only six of the 18 manufacturing industries reported employment growth. That’s down from eight in October. This is not consistent with a V-shaped recovery. It is, however, still consistent with a muddle-through recovery.
On to inventories. First, manufacturers’ inventories:
Manufacturers’ inventories contracted at a faster rate in November as the Inventories Index registered 41.3 percent. The index is 5.6 percentage points lower than the October reading of 46.9 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
Apparel, Leather & Allied Products is the only one of 18 manufacturing industries reporting higher inventories in November. The 13 industries that reported decreases in inventories in November — listed in order — are: Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Machinery; Miscellaneous Manufacturing; Paper Products; Fabricated Metal Products; Transportation Equipment; Computer & Electronic Products; and Chemical Products.
The customers’ inventories:
The ISM Customers’ Inventories Index registered 37 percent in November, slightly lower than in October when the index registered 38.5 percent. The index indicates that respondents believe their customers’ inventories are too low at this time. This is the eighth consecutive month the Customers’ Inventories Index has been below 50 percent.
The two industries reporting higher customers’ inventories during November are: Furniture & Related Products; and Chemical Products. The 12 industries that reported lower customers’ inventories during November — listed in order — are: Wood Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Printing & Related Support Activities; Primary Metals; Apparel, Leather & Allied Products; Transportation Equipment; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; and Fabricated Metal Products.
Both inventory levels are contracting at an increasing rate. I wouldn’t read too much into the second derivative on these. At some point, inventories get too depleted and must be restocked. While this is a certainty, the timing is not. Companies can go out of business. Those that do won’t be restocking. Those that don’t have to compete against liquidation sales. This is a tough environment. The employment bump is encouraging, though. When inventories start being restocked, the employment gains will be a little more sustainable. Until then, gains in employment are nice, but possibly temporary.
Keep in mind that this report missed expectations. I’m not sure how bearish to be on “less good” news. Given that the markets are still digesting “less bad” news as good news, I think any good news should be appreciated for what it is. Also, additional jobs are to be appreciated, especially when they fall into the “making stuff” category.
