Manufacturing Stays Steady

NEW YORK (CNNMoney.com) -- The pace of manufacturing growth was little changed in November, according to a closely watched survey of executives in the sector released Monday that showed a pick-up in production even as manufacturers trimmed hiring plans.
The Institute For Supply Management's manufacturing index came in at 50.8, down from the 50.9 reading for October. Any reading above 50 indicates growth in the sector, while a reading below 50 indicates contraction. Economists surveyed by Briefing.com had forecast a 50.5 reading for November.
The concern that problems in the the real estate and credit markets would put a break on U.S. economic growth did not get a lot of support from this reading.
"While other segments of the economy are struggling, manufacturing continues to grow due to continuing strength in new orders, and a recovery in production from last month," said a statement from Norbert Ore, chair of ISM's committee that compiles the report.
Manufacturers were apparently being helped by a weak dollar making their goods more competitive, as they saw an increase in export orders. And they believe that their customers' inventories have fallen to levels that are too low to sustain business, which could suggest a pickup in new orders ahead.
The report showed 23 percent of those surveyed had a better rate of production, up from 18 percent in the October reading. But the percent who expected to have more employees dropped to 14 percent from 17 percent, while those looking to trim staffs rose.
While the reading just above 50 does indicate growth in manufacturing, the report is a bit below what is considered "average" growth in the sector, which would typically bring a reading closer to 53, said economist Robert Brusca. He said the employment reading and a drop in manufacturers' backlog of orders in this report indicates weakness in the sector.
"The U.S. economy is not an export-led economy," he said. "The exports we have don't take very much labor. It's not the thing to stop the economy from going into recession."
The ISM is closely watched as one of the first readings on the state of an important sector of the economy in the just completed month. This month is particularly important, given increasing signs of a slowdown in the U.S. economy and speculation about what the Federal Reserve will do with interest rates at its Dec. 11 meeting.
There are growing expectations among some investors and economists that the central bank could cut rates by as much as a half percentage point in an effort to keep the economy from falling into a recession. Hopes for a half-point cut are not helped by this report.
But there is still widespread belief that the Fed will cut rates by at least a quarter point, which would mark the third straight meeting at which it reduced rates.
The report showed a jump in prices paid by manufacturers for their raw materials, with 42 percent saying they were paying more, up from 33 percent a month ago. John Silvia, chief economist for Wachovia, said the report's prices paid component was a concern about building inflation pressures, even if it's not enough to stop the Fed from cutting rates on Dec. 11.
"For decision-makers, prices paid [is] a negative," he said. "Higher input prices put a squeeze on profits. Moreover, inflation concerns for the Fed will limit future easings. Rising chemical prices and energy prices are a particular concern."