The manufacturing sector continued its contraction in November, with the PMI falling to 47.8, matching the preliminary estimate, from 48.8 in November.

Demand continues to remain weak, with orders having contracted for over three years. As a result, factories reduced inventories to levels not seen since April 2020. The results show that domestic demand is the main driver behind the decline. Export volumes increased for the first time in roughly four years, as companies reported orders from Europe, Africa, and APAC.

The lack of orders is having a knock-on effect as purchasing volumes fell at their fastest pace since July as firms worked through existing inventories. Companies have also been reducing employment levels, mostly by not renewing temporary contracts.

Still, manufacturers are optimistic with the Future Output Index component rising markedly on the month and coming in above 50, signaling expansion. More optimistic growth forecasts and new product launches bolstered sentiment. Still, forecasts are just that, and it remains to be seen if those become reality.

While the optimism is a welcome sign, it still masks the underlying problem in the manufacturing sector that is the lack of domestic demand. The anecdotal evidence is starting to show a deterioration of related sectors which, if not reversed, will continue to act as a drag on the overall economy. It is also encouraging that export orders are picking up in non-US economies, which could be the first indications that trade patterns are starting to shift.

The consensus sees no revision from the November flash at 47.8, down from 48.8 in the October final.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 400 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are released by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the S&P Global PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures..

The S&P Global PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.