Coming in at 48.6%, 1.5 percentage points lower than the October reading, the data muddies the economic waters ahead of the Fed’s next rate meeting on 16 December, which most expect to result in the first rate hike in the US since 2006.
According to ISM, of the 18 manufacturing industries, Printing & Related Support Activities; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Transportation Equipment all reported growth in November, while Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Primary Metals; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Furniture & Related Products; Fabricated Metal Products; and Chemical Products contracted.
To put the numbers into context, according to the ISM, a reading above 50% indicates that the manufacturing economy is generally expanding, while a PMI® above 43.1% over a period of time, generally indicates an expansion of the overall economy.
Thus, the ISM said: “The November PMI® indicates growth for the 78th consecutive month in the overall economy, while indicating contraction in the manufacturing sector for the first time in 36 months.”
Russ Mould, investment director at AJ Bell said the imprint leaves Fed chair, Janet Yellen, and the Federal Reserve with a huge dilemma
“It is a particular concern to see in today’s ISM PMI report references to declines in new orders and production and a slowdown in supply deliveries, as firms battle with inventories. Other data has shown how stockpiles of finished goods have increased, potentially flattering headline GDP growth numbers and any attempts to shift them could hit both output and pricing – neither trend will have the Fed dashing to tighten.”
Ben Gutteridge, head of fund research at Brewin Dolphin said that while the Markitt Manufacturing PMI data released late last month was actually ok, the ISM number certainly adds to the case for the Fed to defer raising rates or, at least to come out with a very dovish message should it choose to raise rates.
“It is clear that dollar strength is hurting this part of the market. I do not think it is enough on its own to derail a hike, but it certainly does not help.
IG senior market analyst, Chris Beauchamp said the imprint could well provide the cover the Fed seeks should it choose not to move in December. “Late-comers to the US dollar rally felt the pinch, as the dollar index trimmed gains made over the past two sessions, and while December still seems a likely possibility, the recent numbers will underline concerns that the Fed is too fixated with the idea of getting in a hike before the end of 2015.”
