US: Industrial sector is under significant pressure, but not in freefall

Data released today showed the November ISM manufacturing index came in at 48.1. Analysts at Wells Fargo point out that it is tough to square the deterioration signaled by the ISM when other measures indicate a slowing rather

Key Quotes:

“Our sense is that the ISM index reflects the current state of the manufacturing sector in its most unflattering light.”

“Our take throughout the recent run of soft factory data has been that the industrial sector is under significant pressure, but not in freefall. But the pressure is not abating. In fact the key weaknesses in today’s report were the forward-looking components tied to orders. New orders slipped to 47.2, which ties the lowest reading for this expansion, and order backlogs fell to a three-year low of 43.0.”

“Some indications of improvement were evident in this report as well. The production component, for example, climbed to 49.1, a three-month high. Export orders tumbled two and a half points, but the imports component climbed to 48.3. While that is still below 50, it is the highest reading since June.”

“The inventory component fell to a three-year low of 45.5, signaling that businesses are not stockpiling like they have in the past. In the third quarter, private companies increased inventories at about the same pace they did in the prior quarter, so inventories were only a slight drag on GDP. We are expecting a slower pace of inventory investment to slice about half a percentage point from headline GDP growth in the fourth quarter.”

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