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WASHINGTON (Reuters) -U.S. Manufacturing activity slowed in November, and new orders retreated from their highest level in nearly 17 years, as a resurgence of COVID-19 cases across the country held onto workers at home and factories closed temporarily to disinfect facilities.
The Institute for Supply Management (ISM) warned on Tuesday that absenteeism at factories and their suppliers, as well as difficulties returning and hiring workers, would continue to “hold back” manufacturing until the coronavirus crisis ended.
Weakening manufacturing activity supports expectations of a sharp slowdown in economic growth in the fourth quarter amid the raging pandemic and the end of fiscal stimulus.
Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell on Tuesday urged Congress to provide more help to small businesses. A bipartisan group of lawmakers proposed a new $ 908 billion emergency aid package for small businesses and millions of unemployed Americans.
“The dreaded economic slowdown is starting, but it’s pretty slow on the blocks,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania.
The ISM index of national industrial activity fell to a reading of 57.5 last month from 59.3 in October, which had been the highest since November 2018. A reading above 50 indicates an expansion in manufacturing , which represents 11.3% of the US economy. Economists polled by Reuters had predicted that the index would drop to 58 in November.
Sixteen manufacturing industries, including wood products, machinery and transportation equipment, posted growth last month. Petroleum and coal product industry contracting as well as printing and related support activities.
The United States is in the grip of a new wave of COVID-19 infections, with 4.2 million new cases and more than 35,000 coronavirus-related deaths reported in November, according to a Reuters tally of official data. The virus is likely to disrupt production in factories. Manufacturing production is still about 5% below its pre-pandemic level, according to the Fed.
More than $ 3 trillion in government aid has been depleted by COVID-19. Fiscal stimulus helped millions of unemployed Americans meet daily expenses and businesses kept workers on payroll, leading to record economic growth in the third quarter.
The slowdown in manufacturing activity followed last week’s data showing a cooling in consumer spending in October.
The economy grew at a historic annualized rate of 33.1% in the third quarter after contracting at a rate of 31.4% in the April-June period, the deepest since the government began keeping records in 1947. Growth estimates for the fourth quarter are mostly below 5% Velocity. The explosion of COVID-19 infections and the lack of additional stimulus have left some economists anticipating a contraction in the first quarter of 2021.
A second Commerce Department report on Tuesday showed a solid increase in construction spending in October, but expenditures in September actually decreased rather than modestly increased as previously estimated.
Stocks on Wall Street rose, with the S&P 500 index and the Nasdaq hitting all-time highs in hopes that a COVID-19 vaccine will be available soon. The dollar fell to a two-and-a-half-year low against a basket of currencies. The prices of US Treasuries fell.
MIXED VIEWS
Manufacturers last month offered mixed assessments of business conditions. Manufacturers of transportation equipment said the outbreak in COVID-19 cases was putting pressure on suppliers, with labor being the main problem, affecting production.
In the food industry, factories “sent employees home for 14 days to quarantine” and “had to shut down production lines for lack of staff.” This led to “much higher than normal” costs of production, suggesting that consumers may soon be paying more at the grocery store at a time when an estimated 13.6 million Americans will lose government-funded unemployment benefits. one day after Christmas.
But fabricated metals producers reported strong business and said they expected demand to continue to grow in 2021. Machinery manufacturers were also optimistic, though they said the coronavirus remained a concern.
ISM’s Forward New Orders subindex fell to a reading of 65.1 in November from 67.9 in October, which was the highest reading since January 2004. Employment in the manufacturing sector contracted after expanding in October by first time since July 2019.
ISM’s manufacturing employment indicator fell to a reading of 48.4 from 53.2 in October. That likely reflects absenteeism due to the coronavirus, as well as layoffs as demand weakens. It fits with economists’ expectations that job growth slowed further in November. Manufacturing represents more than 10% of private payroll employment.
“Today’s news of layoffs in the sector, whether planned or not, is a worrying sign showing that there is no clear path to win here for the economic outlook as 2021 approaches,” Chris Rupkey, Chief Economist MUFG in New York.
According to a first Reuters survey of economists, nonfarm payrolls likely increased by 495,000 jobs last month after rising by 638,000 in October. Job growth has cooled from a record 4.781 million new jobs in June.
About 12.1 million of the 22.2 million jobs lost in March and April have been recovered. The government is scheduled to release the November employment report on Friday.
Report by Lucia Mutikani; Editing by Dan Burns and Paul Simao
