The Institute for Supply Management’s factory index for November came to 58.7, the second-strongest level since April 2011. In October, the index had reached 59. Readings greater than 50 indicate expansion, according to the Tempe, AZ-based trade group.
“Whatever is happening abroad, this sector seems to be shrugging it off; there’s still a fair amount of momentum in the U.S. manufacturing sector,” economist Guy Berger told Bloomberg. Berger of RBS Securities Inc. in Stamford, CT, was projecting a reading of 58.5 in the new year.
The ISM’s orders index was up slightly in November, from 65.8 last month to 66. The 64.6 average over the past four months is the highest since early 2004. The index showed factories are struggling to keep up with demand, as the index of bookings waiting to be filled rose to the highest level since April. ISM’s supplier deliveries gauge was at its highest level since February, an indication that factories were having trouble getting materials.
The increase in backlogs is likely at least partially due to dockworker slowdowns on the West Coast, said Bradley Holcomb, chairman of the ISM’s factory survey. Longshoremen at 29 ports are in the middle of contract negotiations with the Pacific Maritime Association. Holcomb added that the strong backlog of orders, in addition to new orders, positions the manufacturing sector to finish strong in 2015.
However, the continued manufacturing growth could be threatened if sluggish Black Friday sales are a portent of 2015’s economic outlook. Despite widely advertised discounts, U.S. consumers spent 11% less during the holiday weekend, compared to last year, according to the National Retail Federation.
“If we don’t see consumers spend at a very markedly improved pace in December, we are looking for manufacturing, which has been really the silver lining of the recovery in the second and third quarters, to fall off,” said Lindsey Piegza, chief economist at Sterne Agee & Leach Inc. in Chicago.