Manufacturing index plunges into contraction

PMI drops to 48.6% as new orders, production drag index below 50% for the first time in three years.
By Bob Vavra, Content Manager, CFE Media December 1, 2015

PMI drops to 48.6% as new orders, production drag index below 50% for the first time in three years. Courtesy: CFE MediaThe Institute for Supply Management’s (ISM) monthly PMI Index dropped below the 50% mark for the first time in three years on Dec. 1. The 48.6% reading for November is the first contraction in the manufacturing sector since November 2012, and continues a steady decline in the index. Analysts had predicted a slight increase in the November PMI, so the news Dec. 1 came as a shock.

After reaching 53.5% in June, the PMI has been on a steady decline, as a drop in oil prices has put pressure on those sectors that rely on growth in the oil market.

A drop in new orders, production and raw materials led to declines in 10 of the 18 industries surveyed by ISM. A softer global manufacturing economy also has weighed on the index, said Bradley Holcomb, chairman of the ISM’s Manufacturing Business Survey Committee.Many of the underlying indexes for the overall PMI also declined in November. The New Orders Index plunged 4 percentage points from 52.9% to 48.9%, an 8% decline for the month. The Production Index also plummeted, falling from 52.9% to 49.2%, a decrease of 7.5%.

Only five manufacturing sectors surveyed by ISM reported growth in November: Printing & Related Support Activities; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Transportation Equipment. Ten industries reported contraction, including 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.Comments from committee members reflected the impact of both domestic oil prices and global economic issues on the index. Among the comments:

  • "The oil and gas industry is realizing that [the] ‘low’ oil prices are now the new reality with expectations to continue at this level for some time." (Petroleum & Coal Products)
  • "Still seeing deflation in raw materials." (Chemical Products)
  • "Bookings and new orders are lower than expected." (Computer & Electronic Products)
  • "Automotive remains strong." (Fabricated Metal Products)
  • "Business is still good." (Transportation Equipment)
  • "Downturn in China and European markets are negatively affecting our business." (Machinery)
  • "Strong dollar is slowing our sales to China as they can buy in Europe." (Primary Metals)
  • "Incoming orders have leveled off from the summer." (Furniture & Related Products)
  • "Month-over-month conditions are stable." (Food, Beverage & Tobacco Products)