Manufacturing Outlook Remains Downcast

ISM released its manufacturing report on December 1. Matthew Martin, U.S. economist at Oxford Economics provided the following analysis. 

• The ISM Manufacturing PMI was unchanged from the prior month, with little evidence of a pick-up after the end of the UAW strike, extending the streak of contractionary readings to 13 months. The November ISM report, in addition to the Fed's Beige Book, paint a picture of a sector unlikely to rebound any time soon, with headwinds unlikely to dissipate until late 2024.
• Contrary to market expectations, we expect the Fed to remain on pause until Q3 2024, which, alongside tight lending conditions, will restrict business investment. Though we expect consumption growth to remain positive in the coming quarters, we see services spending contributing to bulk of the strength as goods spending declines outright, with durable goods the most impacted. Inventory levels, which were a source of strength for GDP in Q3, are likely to pull back in the face of weak demand.
• The ISM Manufacturing PMI was unchanged at 46.7 in November, with all components in contraction territory. Production levels declined for the first time since July, and new orders continued to decline and have not increased since August of 2022. Manufacturers are pulling back on employment levels, with the index contracting for a second month as companies manage headcount. The prices index increased to 49.9, indicating declines in prices, but at a slow pace - with respondents signaling declines in energy prices are being offset by higher steel prices.