WASHINGTON -- With businesses blaming the slow global economy and uncertainty from the fiscal cliff battle in Washington, U.S. manufacturing activity contracted in November, the ISM monthly survey showed Monday.

“The Institute for Supply Management index for November was 49.5, signaling a small decline in manufacturing activity from modest growth in October,” noted Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI).

The sub-index for new orders fell 3.9 points to 50.3, and the employment index fell 3.7 points to 48.4. Inventories also contracted while price growth slowed, all showing the manufacturing sector as sluggish in the month.

“Curiously, the components of the index indicates moderate growth in both October and November for the production indicator," he added. "This is in sharp contrast to the Federal Reserve Board’s industrial production index for manufacturing in October, which showed a 0.9% decline in production primarily due to Hurricane Sandy. It is likely that production did rebound in November from the storm related effects at the end of the prior month.”

“Major elements of the ISM index that contributed to the declining signal were a flattening out of orders, a reduction in employment, and unfavorable foreign trade dynamics,” Meckstroth added. “Some of the narratives stated that the approaching fiscal cliff had something to do with the malaise, which is unsurprising given the stark difference in outcomes—to go over the cliff and put the economy in recession next year, or achieve a compromise agreement and foster continued modest growth. 

“Unfortunately, the political wrangling and the uncertainty it creates does have immediate consequences. Two indicators of confidence are declining: manufacturing firms are unwilling to invest expanding the purchasing of equipment, or in adding more people to their workforce.  Nondefense capital goods orders excluding aircraft are flat so far this year and manufacturing employment has stopped growing.”

Copyright Agence France-Presse, 2012, IW Staff