US manufacturing activity contracted in November for the first time since the early days of the COVID-19 pandemic as higher borrowing costs weighed on demand for goods.
The Institute for Supply Management said Thursday that activity at its gauge factory fell to 49 from 50.2 in October. It marks the first contraction and weakest reading since May 2020.
Readings above 50 indicate expansion in manufacturing – which accounts for about 11.3% of the US economy – while readings below 50 indicate contraction.
“November’s composite index reading reflects companies’ preparations for lower production going forward,” said Timothy Fiore, chairman of ISM’s Manufacturing Business Survey Committee, in a statement.
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Of the top six manufacturing industries, only two — petroleum and coal products and transportation equipment — posted growth last month. Overall, only six industries saw growth while 12 contracted in November.
Meanwhile, the survey’s forward-looking new orders sub-index fell further to 47.2, the third straight month of decline.
A measure of prices paid for materials used during production fell for the eighth straight month, with input prices contracting at their fastest pace since May 2020 – evidence that commodity inflation may be easing gradually if the Reduce supply chain disruptions.
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The benchmark comes amid growing fears that the Federal Reserve will trigger a recession as it embarks on the fastest tightening streak to curb inflation since the 1980s.
So far this year, the Fed has raised its benchmark overnight interest rate from near zero to a range of 3.75% to 4%, well into the restrictive zone. Fed Chair Jerome Powell said Wednesday the Federal Reserve could scale back the scope of its interest rate hikes “as soon as December,” but stressed there was more to do to cool inflation, which is still close to a 40-year lies high.
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Though Powell claimed that a so-called soft landing — or “soft” landing — was “very plausible” and “still achievable,” he acknowledged that the road to such an outcome is narrowing.
“We think slowing down at this point is a good way to balance the risks,” he said.