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Normally, we begin each month with reports on both construction spending and manufacturing. But even though the federal shutdown has been over for more than three weeks, data releases have been both very sparse and very stale. In particular, construction spending for August was just released two weeks ago. There was no updated report this morning, and as far as I can tell no target date for the September release. 

Which means that the ISM manufacturing and services reports will continue to be of heightened importance this month and probably next month as well.

Last week, I updated the regional Feds’ manufacturing reports, which showed something of a rebound, but with widespread increases in prices paid and stagnation in employment.

Today’s ISM manufacturing report was significantly weaker. There was contraction across the board, except for prices paid, which increased to 58.5 (a reminder that 50 is the dividing line between strength and weakness). New orders declined to 47.2, employment to 44.0, and the headline number to 48.2. 

For forecasting purposes, I use an economically weighted three-month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively.

With today’s report, the three-month average for the headline number is 48.7. The more significant news is that the three-month average of the more leading new orders subindex declined to 48.6. Here is a look at both the total index (blue) and new orders subindex (gray) for the past three years (via Tradingeconomics.com):
 

Both remain slightly better than their low points in 2022-23, which is noteworthy because there was no recession then.

As I indicated above, for the economy as a whole, the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. In the non-manufacturing report, the averages of the last two months for the headline and new orders numbers have been 52.1 and 53.3, respectively. Pending the ISM report on services on Wednesday, the economically weighted headline number is 51.2, and the new orders average is 52.1. These continue to be expansionary if only weakly.

Last month, I started to report on the prices paid and employment subindexes, as in the absence of current employment or inflation data are more important now. 

Prices paid (the ISM does not report on prices received downstream) increased from 58.0 last month to 58.5 this month, although it remains substantially lower than the 60.0+ readings from this summer, suggesting as with the regional Fed indexes, that there is still widespread pricing pressure, but it is getting integrated into companies’ models. The graph below shows the last five years better to compare the current situation with the immediate post-pandemic inflation.:
 

The low point remains employment, which sank from 46.0 last month to 44.0, among the lowest readings since the pandemic:
 

To sum up, unlike the regional Fed manufacturing reports, the ISM manufacturing report for November indicates a manufacturing sector sinking further into contraction on both the production and employment fronts, but facing stagflationary price pressures. Because this report is national in scope (vs. only 5 Fed districts), I would give this measure more weight. And given the pronounced weakness in the regional Fed services reports, Wednesday’s ISM services report assumes even greater importance.

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