Manufacturers increased output last month to its highest level in nearly two decades while they reversed a 37-month decline in employment, say the nation's supply executives in the latest Manufacturing Report on Business. The report, which is issued by the Institute for Supply Management (ISM) gives an early indication of the status of the manufacturing sector.

According to the November report, business activity in manufacturing grew for the fifth consecutive month while the overall economy expanded for the 25th month in a row. In fact, ISM's overall index of manufacturing activity registered its best reading since December 1983. And a closer look at the index's components suggests that robust manufacturing growth is likely to continue—production, new orders and order backlogs all posted healthy increases as factories worked hard to keep pace with demand.

Handily beating Wall Street forecasts of a 58.1 reading, the report's manufacturing index stood at an outstanding 62.8% in November, up 5.8 percentage points from October. Based on a survey of purchasing managers, an index above 50 indicates expansion within the manufacturing sector while a reading below 50 signifies contraction over the prior month. An index at 50 means that there was an equal balance between manufacturers reporting gains and declines in their business.

Norbert J. Ore, who manages the index for the ISM, says, "The manufacturing sector enjoyed its best month since December 1983. The big improvement is in employment as the index rose above 50%, indicating growth, following 37 consecutive months of decline. The momentum is coming from continued strength in new orders and production as the indexes are presently at very lofty levels."

New orders—a key source of future activity—hit its highest level since December 1983. It surged to 73.7% last month, up 9.4 percentage points from October. Meanwhile, production reached 68.3% in November, exceeding its October reading by 5.7 percentage points.

But the improvement in employment was the most encouraging sign of all. After three years of contraction, employment expanded last month. The index hit 51%, up 3.3 percentage points from October. An employment index above 47.8% over time is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Jerry Jasinowski, president of the National Association of Manufacturers, described the ISM report as "compelling evidence that the long hemorrhage of manufacturing jobs is coming to an end." The factory sector has been the most badly battered during the recession and the slow recovery, shedding more than 2.5 million jobs over the past three years. Despite the recent uptick in manufacturing employment, Jasinowski and others warned that there's still a long road ahead.

Still, the ISM report follows other encouraging reports signifying that the economy grew at an annual rate of 8.2%—the fastest in nearly 20 years—in the third quarter and the job market had started to turn around. Such data have prompted economists to predict continued strong growth next year—even after the effects of this year's tax cuts and the Federal Reserve's recent reduction in interest rates have faded. "I think this speaks to the strength of the economy right now, but it also speaks to the confidence of companies," says Ore, who is also group director of strategic sourcing and procurement at the Georgia-Pacific Corporation.

Comments from purchasing and supply managers were more upbeat in November as various industry segments began to see an upsurge. Of the 20 industries in the manufacturing sector, 18 industries reported growth: instruments and photographic equipment; glass, stone and aggregate; leather; electronic components and equipment; tobacco; industrial and commercial equipment and computers; primary metals; food; transportation and equipment; fabricated metals; wood and wood products; textiles; furniture; miscellaneous*; printing and publishing; chemicals; apparel; and rubber and plastic products.

To learn how you might respond to this survey and contribute to this monthly report on the state of the manufacturing sector, please visit the ISM Report or contact Kristin Bryson at ISM (kbryson@ism.ws).

*Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments.

Sources:

November Manufacturing ISM Report On Business
Institute for Supply Management
www.ism.ws/ISMReport/ROB122003.cfm

Factory Output Points to Recovery
Sue Kirchhoff
USA Today, December 1, 2003
www.usatoday.com/money/economy/production/2003-12-01-ism_x.htm

Manufacturing at Highest Level in Two Decades
Edmund L. Andrews and Floyd Norris
The New York Times, December 2, 2003
www.nytimes.com/2003/12/02/business/02ECON.html