TEMPE, AZ-Though the US manufacturing industry is experiencing a positive turnaround, the rate of change is again decelerating, suggesting industrial property owners should not expect a quick pickup in demand for space. The Tempe-based Institute for Supply Management reports its manufacturing index, while remaining in expansion mode for the fourth month in a row, dropped to 53.6% in November from 55.7% in October.

“While the November manufacturing report indicates that the US factory sector continues to enjoy recovery from a deep six-quarter contraction, this report, along with other recent data, suggests that the pace of output growth will slow from the relatively rapid clip seen in the third quarter,” says Cliff Waldman, economist for the Manufacturers Alliance/MAPI in Arlington, VA. According to Waldman, much of the preceding months’ growth was catalyzed by an inventory turn along with a number of short-term fiscal stimulus programs.

A reading above 50% indicates the manufacturing economy is generally expanding, while a reading below 50% indicates contraction. Though analysts were disappointed the index did not reach the 55% level they had forecast it would, they remain generally optimistic the expansion will continue, noting the figure has climbed significantly from the low point of 32.9% it reached in December 2008. Twelve of the 18 manufacturing industries tracked by ISM reported growth in November, while five reported contraction and one remained unchanged.

Waldman attributes the November fallback to slower growth in the backlog of orders. He says the slippage suggests manufacturing growth will continue to be less than what would be expected in the wake of a deep recession, at least over the near term. In his opinion, the factory sector is still struggling to gain a sustainable post-recession growth path. “The clear turn in the US and global economies has pulled manufacturing out of a deep slump,” he observes. “But a deleveraging US consumer and an uneven global economic recovery will make it difficult for US factory output to grow at the rate that is needed to absorb historic excess capacity anytime soon.”

In regard to other measures, ISM’s index for new orders rose 1.8 points from October to reach 60.3%. November was the fifth consecutive month of growth for new orders. On the other hand, the production index fell 3.4 points to 59.9%. Despite the decline, it marked the sixth consecutive month of positive activity. In addition, inventories continued to contract, falling 5.6 points to 41.3%. November was the 43rd consecutive month of inventory contraction.

Norbert J. Ore, chair of the ISM survey committee, considers the overall trend healthy, despite some setbacks. “While the rate of growth slowed when compared to October, the signs are still encouraging for continuing growth as both new orders and production are still at very positive levels,” he says. The fact the prices index fell 10 points indicates there will be less inflationary pressure on manufacturers’ costs, he adds. “Overall, the recovery in manufacturing is continuing, but many are still struggling,” he says.

According to MAPI/Manufacturers Alliance chief economist Daniel Meckstroth, US factories remain “grossly underutilized,” with capacity utilization at only 68% as recently as September. The rate of utilization reached a post World War II low of 65% in June. The Commerce Department reports durable goods orders dropped 0.6% in October, the most recent month for which statistics were available, after rising 2% in September. Durable goods orders are seen as a leading indicator of manufacturing activity.

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