US Factory Activity Shrinks Less Than Forecast As Orders Expand

(Bloomberg) -- US manufacturing activity shrank in November by less than forecast as a gauge of new orders moved into expansion territory for the first time in eight months and indicated business confidence is gradually improving.

The Institute for Supply Management's factory gauge rose 1.9 points, the most since March, to 48.4, data out Monday showed. The median projection in a Bloomberg survey of economists called for an index of 47.5. While the latest figure marked an eighth straight month of contraction with a reading below 50, most categories that feed into the overall index showed improvement.

The advance in November left the purchasing managers gauge at the highest level since June, suggesting manufacturing is stabilizing after a two-year downturn. The new orders gauge climbed 3.3 points, the most in five months and a sign of budding optimism following the presidential election.

“Demand continues to be weak but may be moderating, output declined again, and inputs stayed accommodative,” Timothy Fiore, chair of the ISM's Manufacturing Business Survey Committee, said in a statement.

Eleven manufacturing industries reported contraction last month, led by printing, plastics and rubber, and chemical products. Three industries expanded.

While measures of production activity and factory employment remained in contraction territory, both gauges improved. The ISM manufacturing employment index rose 3.7 points, the most in more than two years, to 48.1 in November.

Prices Paid

Another favorable sign for producers are waning materials costs. The group's prices-paid index fell 4.5 points to 50.3, well below the 2024 average and an indication that overall costs are more manageable.

That may help shore up confidence goods prices in the economy will remain tame. Still, data out last week showed that the Federal Reserve's preferred measure of underlying inflation accelerated in October from a year ago, bolstering the case that officials may be in no rush to cut interest rates.

The ISM report also showed a 5.5-point increase in the factory inventories index to 48.1, a month after shrinking at the fastest pace since June 2012. The improvement suggests that the sharp trimming of inventories by producers in September and October may have run its course. That may help further boost orders and fuel production.

The increase in new orders is a welcome change for manufacturers as the backlog of orders fell once again in November to the lowest level since July. Order backlogs have been contracting every month since September 2022.