Manufacturing Has an Inventory Problem

Manufacturing Has an Inventory Problem

U.S. manufacturing activity contracted for the first time in three years.

U.S. manufacturing activity contracted for the first time in three years in November, according the latest report form the Institute of Supply Management.

The group’s purchasing managers index for the manufacturing sector dropped to 48.6 in November from an October reading of 50.1 that was just a tick inside growth territory. The contraction was unexpected, with analysts on average forecasting an increase to 50.4 on the index.

Activity is abnormally weak, according to Daniel J. Meckstroth, chief economist for the MAPI Foundation, with manufacturing activity registering 48.6 or lower just 17% of the time during the last quarter of a century.

“Manufacturing has an inventory problem,” Meckstroth said. “The ISM report finds firms are reducing inventory at a faster rate — an index of 43% in November compared with 46.5% in the prior month. The inventory drawdown is a symptom of slow production growth and the deflation that is rampant within the goods-producing industries. A large inventory drawdown means that firms’ demand is temporarily growing faster than production.

More on the ISM report on IndustryWeek.

IndustryWeek is an MH&L companion site withing Penton’s Manufacturing & Supply Chain Group. 

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