December 1, 2020 1:30 PM, EST

US Factory Gauge Eases From Two-Year High as Employment Cools

Jim Tuchler, president of Gifts For You, left, inspects a product. (Olivia Obineme/Bloomberg News)Olivia Obineme/Bloomberg News

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U.S. manufacturing expanded at a slower pace in November, easing back from the strongest reading in two years as orders, employment and production cooled.

A gauge of factory activity fell 1.8 points to 57.5, according to data from the Institute for Supply Management released on Dec. 1. The figure, slightly below the median estimate of 58 in Bloomberg’s survey of economists, showed conditions remain well above the 50 level that indicates growth. Sixteen of 18 manufacturing industries reported growth in November, ISM said in a statement.

Even with some lost momentum, the manufacturing measure is the second-strongest in the past two years and well above pre-pandemic levels. Steady demand and lean inventories continue to drive output growth despite the lingering uncertainty and supply chain disruptions posed by the pandemic.

Factories lost some steam but remained healthy in November.

Such resilience will be tested as infections soar heading into the holiday season and many cities and states tighten restrictions to help slow the spread. Federal Reserve Chair Jerome Powell warned lawmakers in testimony released Nov. 30 that rising caseloads may prove challenging for some months despite progress on vaccines.

“Companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that will likely limit future manufacturing growth potential,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in the statement.

Four of the five components of ISM’s factory gauge cooled, led by the employment index, which dropped 4.8 points to 48.4 — a return to contraction that signals potential labor market weakness ahead of the Dec. 4 U.S. jobs report. ISM’s measure for new orders slipped to 65.1 from a 16-year high of 67.9, while the production gauge retreated 2.2 points to a still-robust 60.8.

Meantime, the supplier deliveries index rose 1.2 points to 61.7, a sign of longer lead times amid strong demand and supply disruptions. The ISM’s measure of customer inventories fell to a fresh 10-year low of 36.3, indicating the possibility of increased production in coming months. The order backlog index rose to a two-year high.

A gauge of factory exports climbed to 57.8, the strongest reading since March 2018 and signaling firm overseas demand.

ISM’s non-manufacturing index, due Dec. 3, is projected to show a sixth-straight month of expansion in November, albeit at a slightly slower pace, according to economists surveyed by Bloomberg.

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