By Lucia Mutikani
WASHINGTON, Dec 1 (Reuters) – U.S. manufacturing contracted for the ninth straight month in November, with factories facing slumping orders and higher prices for inputs as the drag from import tariffs persisted.
The Institute for Supply Management survey on Monday also showed some manufacturers in the transportation equipment industry linking layoffs to President Donald Trump’s sweeping duties, saying they were “starting to institute more permanent changes due to the tariff environment.” They added “this includes reduction of staff, new guidance to shareholders and development of additional offshore manufacturing that would have otherwise been for U.S. export.”
Trump in May imposed 25% tariffs on more than $460 billion worth of imports of vehicles and auto parts annually, but has since struck deals to reduce those tariffs on some countries. The Republican president has issued some tariff relief since then on parts and engines. A new 25% duty on imported medium- and heavy-duty trucks and parts came into effect on November 1.
“The manufacturing sector continues to be weighed down by the unpredictable tariffs landscape,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
The ISM said its manufacturing PMI dropped to 48.2 last month from 48.7 in October. A reading below 50 indicates contraction in manufacturing, which accounts for 10.1% of the economy. With some manufacturers citing the recently ended U.S. government shutdown, a slight improvement is likely, though factory activity will probably remain subdued.
Import duties have undercut manufacturing, though some segments have been boosted by a surge in artificial intelligence investment. The Federal Reserve’s Beige Book report last week said some of the U.S. central bank’s 12 districts reported manufacturing activity increased somewhat, but noted “tariffs and tariff uncertainty remained a headwind.”
Only four industries in the ISM survey, including computer and electronic products, and machinery reported growth. Among the industries that contracted were wood products, transportation equipment and textile mills.
Some makers of chemical products said “tariffs and economic uncertainty continue to weigh on demand for adhesives and sealants, which are primarily used in building construction.” Manufacturers of miscellaneous goods reported that “business conditions remain soft as a result of higher costs from tariffs, the government shutdown, and increased global uncertainty.”
Electrical equipment, appliances and components makers complained about “trade confusion,” with others noting that “suppliers are finding more and more errors when attempting to export to the U.S.” Some manufacturers of wood products said AI was “producing confusing and most often inaccurate information,” adding that “this also causes apprehensive consumer buying patterns, contributing to the challenge of forecasting demand.”
The cloud of uncertainty from tariffs is unlikely to clear soon. U.S. Supreme Court justices last month raised doubts over the legality of Trump’s tariffs, fueling speculation they would be struck down and cause more chaos, as he is widely expected to shift to other trade tactics in the event of an adverse ruling.
‘THE MANUFACTURING SECTOR IS SICK’
Trump has defended the tariffs as necessary to protect domestic manufacturing, though economists have argued it is impossible to restore the industry to its former glory because of structural issues, including worker shortages.
“We can see no sign in this report of a surge in manufacturing in the United States since the tariff regime was unveiled last spring,” said Carl Weinberg, chief economist at High Frequency Economics. “The manufacturing sector is sick.”
The ISM survey’s forward-looking new orders sub-index decreased to 47.4 last month from 49.4 in October. This measure has contracted in nine of the last 10 months. Tariffs have raised prices for some goods, curbing demand. Unfilled orders continued to shrink, though exports improved slightly.
Weak demand meant less pressure on supply chains, though some machinery manufacturers said “transit time on imports seems to be longer” and their counterparts in the fabricated metal products industry reported “longer lead times” because they reduced “suppliers for raw materials to maintain a better direct cost structure.”
The ISM survey’s supplier deliveries index fell to 49.3 from 54.2 in October. A reading below 50 indicates faster deliveries.
Despite subdued orders for factory goods, manufacturers paid more for inputs last month, a sign that inflation could remain above the Fed’s 2% target for a while. The survey’s prices-paid measure increased to 58.5 from 58.0 in the prior month.
“This flags ongoing upside risks to goods prices,” said Oren Klachkin, financial market economist at Nationwide. “We see inflation firming a little bit through early next year and losing steam after the impacts of tariffs pass through the data.”
Fed officials will meet next week to decide on interest rates. As many as five of the 12 voting policymakers on the central bank’s rate-setting Federal Open Market Committee have voiced opposition to or skepticism about cutting rates further, while a core of three members of the Washington-based Board of Governors wants rates to fall.
The survey’s measure of manufacturing employment contracted for the 10th consecutive month. Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, noted that “67% of panelists indicated that managing head counts is still the norm at their companies, as opposed to hiring.”
“That is not a terribly encouraging signal for blue-collar workers at what is a difficult time for employment prospects,” said Shannon Grein, an economist at Wells Fargo.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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