Manufacturers sharply curtailed production late last year and early this year, helping them get a handle on excess inventories that sprung from a near collapse in demand following the credit crisis in late 2008.
With the worst of the contraction behind us, manufacturers put the brakes on production cuts in 2Q and output began to stabilize by summer. Subsequent gains, however, have been modest and there has been little in the way of an acceleration over the past four months (see chart).
Taking a look at the latest on the manufacturing front, the ISM Manufacturing Index fell from 55.7 in October to 53.6 in November, below the forecast of 55.0 offered by Bloomberg. A reading of 50 marks the line between expansion and contraction.
Four straight months of increased production is good news following extreme weakness earlier in the year, and it underscores that the economy has begun to rebound. But the modest gains also signal that the rebound in activity has been gradual.
Prices paid slipped from 65.0 to 55.0, indicating a lessening of inflationary pressures at the early stages of production. And exports inched up to 56.0, the fifth consecutive monthly gain amid a continued improvement in the global economy. But the employment subcomponent fell back from 53.1 to 50.8 – not so good news.
Modest increases in aggregate demand and the need to restock depleted inventories should continue to support production in the coming months.
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