Published 10-12-2015

US MANUFACTURING CONTRACTS IN NOVEMBER FOR FIRST TIME IN 3 YEARS

09-12-2015

US manufacturing unexpectedly contracted last month for the first time in three years due mainly to the strong dollar and deep spending cuts by energy companies.

The Institute for Supply Management’s index dropped to 48.6, the lowest level since June 2009, from 50.1 in October, according to official data released last week.

Readings less than 50 indicate contraction.

A Bloomberg report showed factories believed their customers continued to have too many goods on hand, indicating it will take time for orders and production to stabilize. Manufacturers, which account for almost 12 percent of the economy, are also battling weak global demand.

Analysts say it is unlikely the persistent weakness will deter the Federal Reserve from raising interest rates this month.

“Manufacturing is being pummeled by the stronger dollar and the weakness of global demand, but the other 88 percent of the economy continues to perform well,” said Steve Murphy, a US economist at Capital Economics in Toronto.

The Institute for Supply Management said its national factory index fell to 48.6 last month, the weakest reading since June 2009, when the recession ended, from 50.1 in October. While a reading below 50 indicates a contraction in manufacturing, the index remains above 43.1, which is associated with a recession.

Factory activity has also been undercut by business efforts to reduce an excessive inventory build, which is putting pressure on new orders. The institute said a gauge of new orders tumbled 4 percentage points, to 48.9, last month.

Inventories at manufacturers continued to shrink, and their customers reported stocks of unsold goods were too high for a fourth consecutive month.

Ten out of 18 manufacturing industries, including apparel, electrical equipment, appliances and components, and computer and electronic products reported contraction in November.

Manufacturers cited dollar strength, slower Chinese and European growth and lower oil prices as headwinds. Recent data on business capital spending plans and factory output had offered hope that the worst of the sector’s woes were over.

But with auto sales and construction spending remaining robust early in the fourth quarter, economists still expect gross domestic product to expand at around a 2 percent annual pace, almost matching the third-quarter pace.

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