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ISM Index Drops to 49.5 in November

The overall economy grew for the forty-second straight time, while the manufacturing sector contracted after two months of expansion, the Institute for Supply Management reported Monday.

According to the ISM's monthly report on business, the ISM index slipped to 49.5 in November from 51.7 in October.

Economists polled by Thomson Reuters predicted the index would slip to 51.3.

An index reading below 50 signals a slowing economy, while a level above 50 suggests expansion. A reading of 50 shows the sector was unchanged in the month.

"The PMI registered 49.5 percent, a decrease of 2.2 percentage points from October's reading of 51.7 percent, indicating contraction in manufacturing for the fourth time in the last six months," said Bradley Holcomb, chair of the Institute of Supply Management's manufacturing business survey committee. "This month's PMI reading reflects the lowest level since July 2009 when the PMI registered 49.2 percent. The New Orders Index registered 50.3 percent, a decrease of 3.9 percentage points from October, indicating growth in new orders for the third consecutive month. The Production Index registered 53.7 percent, an increase of 1.3 percentage points, indicating growth in production for the second consecutive month. The Employment Index registered 48.4 percent, a decrease of 3.7 percentage points, which is the index's lowest reading since September 2009 when the Employment Index registered 47.8 percent. The Prices Index registered 52.5 percent, reflecting a decrease of 2.5 percentage points. Comments from the panel this month generally indicate that the second half of the year continues to show a slowdown in demand; respondents also express concern over how and when the fiscal cliff issue will be resolved."

The closely watched prices paid index declined to 52.5 from 55.0. The employment index slipped to 48.4 from 52.1 the prior month.

The production index increased to 53.7 from 52.4, the new orders index fell to 50.3 from 54.2; the supplier deliveries index grew to 50.3 from 49.6; the export orders index dipped to 47.0 from 48.0; and the imports index rose to 48.0 from 47.5.

The inventories index fell to 45.0 from 50.0; the customers' inventories index slid to 42.5 from 49.0; and backlog of orders dropped to 41.0 from 41.5.

Respondents' comments included:

"Conditions still appear to be positive for continued growth in sales." (Machinery)

"Business is steady, but not much more than that. We are in a lull." (Food, Beverage & Tobacco Products)

"The principle business conditions that will affect the company over the next three or four quarters will be the U.S. federal government tax and budgetary policies; the impact of those policies is not yet clear." (Petroleum & Coal Products)

"Differences between first half of year and remaining half are very dramatic, growing to a peak in the middle of the year with a gradual decline since." (Plastics & Rubber Products)

"Seeing a slowdown in request for quote activity." (Computer & Electronic Products)

"The fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed; if the program that is put in place is more taxes and big spending cuts - which will push us toward recession - forget it." (Fabricated Metal Products)

"Seeing a slowdown in demand across markets." (Electrical Equipment, Appliances & Components)

"Economy is very sluggish. Production is down and orders have slowed considerably from Q1." (Transportation Equipment)

"East Coast storms delayed some shipments." (Primary Metals)

"Global economic uncertainty still seems to be sticking around which is not necessarily making things worse, but it is also not making things better from a demand standpoint." (Chemical Products)

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