Tuesday, December 2, 2008

Manufacturing Contracts

From the WSJ:

Grim economic data Monday showed more pain for U.S. manufacturing and construction.

The Institute for Supply Management, a key measure of U.S. manufacturing activity, said its overall index for last month moved to 36.2 from 38.9 in October and 43.5 in September. November's reading was the weakest since May 1982.

Cliff Waldman, an economist for the Manufacturers Alliance/MAPI trade group, said the sharp drop "indicates that the rapidly declining U.S. and global economies have created a deep and worrisome slump in the U.S. manufacturing sector."

The ISM report also showed payrolls shrank, with the employment index at 34.2 from 34.6. The new orders index dropped to 27.9 from October's 32.2.

And another sign emerged of the dour economy's effect on inflation. The ISM prices index hit 25.5 in November from 37.0 -- the lowest reading since May 1949.

Here is the rel event data from the ISM press release:

Manufacturing contracted in November as the PMI registered 36.2 percent, 2.7 percentage points lower than the 38.9 percent reported in October. This is the lowest reading since May 1982 when the PMI registered 35.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates contraction in both the overall economy and the manufacturing sector. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (46.8 percent) corresponds to a 1.8 percent increase in real gross domestic product (GDP). In addition, if the PMI for November (36.2 percent) is annualized, it corresponds to a 1.5 percent decrease in real GDP annually."

This is terrible news; it indicates manufacturing is still in serious trouble. The combination of cratering commodity prices and a global recession is hitting everybody.

Below are some charts from Prophet.net that show the extent of the damange. Notice that the stock prices of all the following manufacturing sub-sectors have collpased over the last few months. Click on all images for a bigger image.

And here is a chart of manufacturing employment from the BLS. Don't expect this trend to pick-up anytime in the near future (Click for a larger image):