US factory activity slows in November, inventory piling up amid softening demand

[WASHINGTON] US factory activity slowed to a four-month low in November as higher prices because of tariffs on imports restrained demand, leading to a piling up of unsold goods that could hinder growth in the overall economy.

S&P Global said on Friday (Nov 21) its flash US manufacturing PMI slipped to 51.9 this month from 52.5 in October. A reading above 50 indicates growth in the manufacturing sector, which accounts for 10.2 per cent of the economy.

US President Donald Trump has defended his sweeping tariffs as necessary to help revive manufacturing. Economists polled by Reuters had forecast the manufacturing PMI at 52.

The survey’s measure of new orders received by factories dropped to 51.3 from 54 in October, while inventory was the highest in the survey’s history.

“Manufacturers reported a worrying combination of slower new orders growth and a record rise in finished goods stock,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“This accumulation of unsold inventory hints at slower factory production expansion in the coming months unless demand revives, which could in turn feed through to lower growth in many service industries.”

There is no spillover yet, with business activity picking up again this month. The US Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 54.8 from 54.6 in October.

Services businesses offset the slowdown in manufacturing, with the PMI rising to 55 from 54.8 in October. The survey’s measure of new orders received by businesses increased to 55 from 53.6 last month.

Business confidence has improved

S&P Global noted a marked improvement in confidence in the year ahead, which it attributed to expectations for more interest rate cuts, the end of a 43-day shutdown of the government as well as “reduced worries over the political environment and hopes for increased policy support to business.”

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The survey was conducted from Nov 12 to Nov 20. Democrats swept a trio of races on Nov 4 in the first major elections since Trump regained the presidency.

Inflation appears likely to remain elevated, which could reduce the chances of the rate cut that businesses anticipated. A measure of prices asked by businesses increased to 56 from 54.7 in October.

A gauge of prices paid for inputs rose to 63.1 from 60 in the prior month. Since the Federal Reserve cut rates in October, many policymakers have signalled wariness about further reductions in borrowing costs this year with inflation still above the US central bank’s 2 per cent target.

The survey also suggested no deterioration in the labour market, even though the unemployment rate hit a four-year high of 4.4 per cent in September. The survey’s measure of private sector employment eased to 51 from 51.3 in October.

“Although jobs continued to be created in November, the rate of hiring continues to be constrained by worries over costs, in turn linked to tariffs,” said Williamson. REUTERS