Stagnant Metrics: November 2023 Manufacturing ISM Report On Business
For the thirteenth consecutive month, manufacturing has found itself in contraction. November 2023 presented a familiar scenario in the sector, as reflected in the Institute for Supply Management’s (ISM) monthly Report On Business.
While the Manufacturing Purchasing Managers’ Index (PMI) held steady at 46.7% — mirroring the figures from October 2023 — its underlying metrics saw significant shifts. As the sector continues to struggle, digging into the figures is pivotal to understanding the evolving landscape of manufacturing as the year draws to a close.
Breaking down November’s numbers
The November 2023 report paints a complex picture. While the PMI stands unchanged at 46.7%, beneath this constant headline figure, there’s movement across various indices. Here’s a brief look at November’s movers and shakers, and what they mean for the manufacturing economy:
- The New Orders index slightly increased to 48.3%, signaling a slower rate of contraction.
- The Production index saw a decline to 48.5%, a shift from growth to contraction.
- Employment struggled, evidenced by the Employment index’s drop to 45.8%.
- Supplier deliveries quickened, with the index falling to 46.2%.
- Inventories slightly rose but remained in contraction territory at 44.8%.
- The Prices index, at 49.9%, indicated a deceleration in price decreases.
- The Backlog of Orders index fell to 39.3%, pointing to a quicker pace of contraction.
With swings ranging from 1% to nearly 5% across every index in the report, the conclusion is clear: Manufacturing is anything but stagnant, despite the static PMI. Volatility is the constant as we near the end of 2023, at a time when manufacturing needs consistency.
End-of-year trends and their catalysts
There’s a myriad of forces shaping the manufacturing sector in Q4, resulting in a split in industry performance. In November, sectors like Food, Beverage & Tobacco Products and Transportation Equipment reported growth — a stark contrast to the contraction in other industries, such as Paper Products and Computer & Electronic Products. This divergence highlights the sector-specific impacts of broader economic trends.
Industry respondents to the ISM report voiced concerns over a slowing economy, with issues like labor challenges and inventory management complexities at the forefront. Notably, the aftermath of the UAW strike underscored the significant influence of external factors on manufacturing dynamics. Meanwhile, one respondent noted that “Customer orders are pushing out, and all efforts are being made to right-size inventory levels, both to mitigate carrying costs on pushed-out orders and to load up on inventory where costs are exploding.”
If manufacturing is to right the ship in 2024, it first needs to weather critical challenges like these. Unfortunately, the sector is unlikely to see relief as the broader economy flashes warning signals.
Ongoing economic implications
The challenges identified in the November ISM Report have profound implications for both the manufacturing sector and the economy at large. Persistent contraction across several indices points to a broader economic malaise, signaling deeper challenges ahead. The question is, how will manufacturing respond?
With the year’s end, there’s a discernible shift toward managing outputs, labor costs, and material inputs more efficiently and strategically. External challenges — such as labor disputes and ongoing supply chain disruptions — vary across different manufacturing industries, adding another layer of complexity to the sector’s outlook. These developments suggest a phase of transformation is coming as companies navigate a landscape marked by both uncertainties and opportunities.
A race to the end of the year
With challenges persisting for producers, the race is on to make it to the end of the year with as little collateral damage as possible. The focus is on battening down the hatches and preparing for protracted downturn — something seasoned manufacturers have proven themselves capable of historically. As one respondent to the ISM report put it, “[Our situation is] good but guarded, as next year is hard to predict.”
