Manufacturing continues to slow

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 36.2% for November which is down from 38.9% for October. This is a dramatic drop from a few months ago where PMI for August 2008 was at 49.9%. Economist's had expected PMI to drop to 37%. PMI is now at the lowest level since May 1982. A PMI reading of 36.2% suggests that the manufacturing economy and the overall economy are both contracting. Per ISM:

"A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting...if the PMI for November (36.2 percent) is annualized, it corresponds to a 1.5 percent decrease in real GDP annually....A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy."

Here is what some of the respondents to the ISM survey are saying:

"The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)

"Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)

"Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)

"We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)

"Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)

 

Manufacturing has fallen off a cliff after holding up well in this financial downturn. Just today, the NBER declared that we are in a recession that began in December 2007.  This recession is already lasting longer than the average recession.  It has turned nasty in the last few months and looks like it has a ways to go.  In the previous recessions, PMI has rebounded quickly right after the recession has ended.

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