Tariff-related supply chain effects are at the heart of uncertainty as the manufacturing industry encountered a faster month of contraction in November, according to the Institute for Supply Management’s latest Purchasing Managers’ Index.
ISM’s index registered 48.2% in November, down 0.5 percentage points compared with October. A PMI index below 50% indicates an industry in contraction.
“It is not certainly what I think folks expected to have happened, but it is where we are, and again, we’re 10 months into the news that is kind of freezing everybody in place for the decision-making,” Susan Spence, chair of the ISM’s Manufacturing Business Survey Committee, said on a call Monday.
The pullback with new orders, employment and supplier deliveries has led to the drop, Spence said.
Backlog orders decreased slightly to 44%. Of the six largest manufacturing industries, only food, beverage and tobacco products reported backlog orders expansion last month, according to the ISM report.
August’s new orders, which were at 51.4%, flowed to an uptick in production in September and a backlog index improvement in October, Spence said. While production in November is up to 51.4%, Spence said the trend has been for “those increases to flow through the chain and go back down.”
Additionally, new orders and employment both contracted at 47.4% and 44%, respectively.
“That’s underscoring what we’ve been saying all along: We have uncertainty,” Spence said. “It’s all about tariffs still. We now have a Supreme Court case that the longer it goes on, the longer we think the uncertainty is and the weakness in manufacturing.”
Last month, the U.S. Supreme Court heard oral arguments on whether President Donald Trump’s unlimited use of tariffs under a self-declared national emergency was legal. The court has yet to deliver a ruling or set a timeline for when it will issue one.
Approximately 58% of the manufacturing sector’s gross domestic product contracted in November, whereas the GDP itself contracted by 39% compared to 41% in October, which Spence said indicates “an underscoring weak economy.” The share of sector GDP with a PMI at or below 45% is a metric used to determine manufacturing weakness, according to the report.
In the ISM survey, a comment from a transportation equipment manufacturer said that they’re starting to implement more permanent changes due to the tariff environment, including staff reductions, new guidance to shareholders and developing additional offshore manufacturing that would have been for U.S. export.
Spence said she interpreted the comment as a U.S. company “being punished” with the tariff uncertainty.
“It’s not making sense financially to expand in the U.S.,” Spence said. “Let’s just do what we can offshore because it’s cheaper.”
Additionally, Spence said the tariffs are having an opposite effect on at least the transportation equipment sector.
“They’ve been battered,” Spence said. “They have gotten a little better in the last month or so, but the transportation equipment industry is getting hit” due to increasing commodities such as aluminum and steel.
“We do not see anything on the horizon that’s going to turn the ship until there is more certainty settling and whatever is going to happen with the legality of the tariffs,” Spence said. “If that can just happen, depending on what the decision is, of course, people maybe will start to get back to being able to make decisions because they know what’s going to stick versus change.”
S&P’s November PMI report gave a slightly positive look at the sector, registering 52.2% last month, down 0.3 percentage points from October. The decrease is reflective of a rise in output and new orders, but much of the growth came from the domestic market since exports have stumbled from tariffs.
Still, overall demand growth was limited and slower than in October amid ongoing uncertainty, the S&P reported.
“Although the headline PMI signaled a further expansion of factory activity in November, the health of the US manufacturing sector gets more worrying the more you scratch under the surface,” Chris Williamson, chief business economist at S&P’s Global Market Intelligence, said in a statement.
Nevertheless, Williamson added that manufacturers have grown optimistic about the year ahead, as the government shutdown ending helped raise confidence from the drop in October.
“Optimism is being fueled by hopes of improved policy support, including lower interest rates, as well as greater political stability, though it is clear that uncertainty remains elevated and a drag on business growth in many firms, holding confidence well below levels seen at the start of the year,” Williamson said.
