US factory gauge ticks higher, but demand softens as inventories swell
The US S&P Global Manufacturing PMI final rose to 52.2 in November, signaling a fourth straight month of expansion, but softer demand and an unprecedented inventory build temper the upbeat headline ahead of the ISM report.
Market context and FX angle
A stronger headline PMI typically lends support to the US dollar and Treasury yields, yet the details point to cooling demand, rapidly rising finished-goods stocks and still-elevated input costs due to tariffs. That mix may cap USD upside as traders focus on the more widely watched ISM manufacturing print and implications for the inflation path. Rate-sensitive FX pairs and front-end yields are likely to be most reactive if ISM diverges materially from expectations.
Key takeaways from the S&P Global report
- Final US Manufacturing PMI for November printed at 52.2, up from October’s 51.9 but below the flash estimate of 52.5.
- Operating conditions improved for a fourth month as output rose at the fastest pace since August and firms added staff.
- Demand growth cooled; weaker sales drove a sharp slowdown in new orders momentum.
- Finished-goods inventories surged for a second straight month—largest two-month rise in the survey’s 18-year history—suggesting production outpaced demand.
- Input-cost inflation remained elevated, often linked to tariffs and logistics delays; however, firms passed on less of these costs, keeping selling-price inflation among the year’s lowest.
- Export orders fell for the fifth month, the steepest drop since July, citing tariff effects and weaker demand in neighboring and Asian markets.
- Business confidence rose to the highest since June, aided by product plans, capex, and expectations of stronger government spending.
Inside the report
– Production and jobs: Output growth accelerated, supported by both new and existing client work, while employment rose at the strongest pace in three months as firms filled vacancies and prepared for higher output.
– Orders and backlogs: The new-order pipeline improved modestly, but overall demand slowed versus October and backlogs declined for a third month, indicating spare capacity.
– Pricing: Input prices stayed historically elevated, frequently tied to tariffs and longer supplier delivery times. Competitive pressures and softer demand led to one of the year’s lowest selling-price inflation readings, hinting at margin squeeze risks if cost pressures persist.
– Trade and supply chains: Supplier delivery times lengthened for a third month, with firms citing border delays in tariff-affected corridors. External demand remained a drag as export orders contracted again.
What to watch next: ISM and policy implications
The more consequential ISM Manufacturing PMI is due at the top of the hour, with consensus at 49.0 versus 48.7 previously. Prices paid are seen easing to 57.0 from 58.0, with the prior employment index at 46.0 and new orders at 49.4.
– For FX and rates: A sub-50 ISM alongside sticky prices-paid would reinforce a “slow expansion, sticky costs” narrative—typically mixed for USD but supportive of front-end yields staying bid. A stronger ISM bounce could bolster the dollar and weigh on risk-sensitive currencies.
– For equities and commodities: Rising inventories alongside softer demand can pressure industrial margins and may signal a near-term production recalibration. Commodity-sensitive names could react to any ISM-driven shift in the growth and inflation mix.
Big picture for traders
The headline S&P reading keeps US manufacturing in expansion, but the composition—softening demand, unprecedented inventory accumulation, and elevated input costs—argues for caution. If ISM corroborates a subdued demand backdrop while prices stay firm, markets may lean toward a higher-for-longer inflation risk in goods, even as selling prices cool. Expect FX volatility around the release, with the dollar’s reaction likely hinging on the balance between growth momentum and price pressures.
FAQ
What did the S&P Global Manufacturing PMI show for November?
The final PMI came in at 52.2, indicating continued expansion. It’s above October’s 51.9 but below the preliminary 52.5 estimate, reflecting firmer output and hiring but softer demand and rising inventories.
Why does this PMI matter for the US dollar?
Manufacturing PMIs shape expectations for growth and inflation. A stronger headline can support the dollar and front-end yields, but mixed internals—like weaker demand and inventory overhang—can limit hawkish repricing and cap USD gains.
How do tariffs factor into the report?
Firms frequently cited tariffs as a driver of elevated input costs and longer supplier lead times. While selling-price inflation eased, input inflation staying high can pressure margins if demand remains soft.
What’s the difference between S&P Global PMI and ISM PMI?
Both are diffusion indices tracking manufacturing activity, but they use different survey panels and methodologies. Markets typically assign more weight to ISM; divergences between the two can occur and often drive short-term volatility.
What are the key ISM components to watch?
Headline PMI, New Orders, Prices Paid, and Employment. A sub-50 headline with firm prices-paid would imply lingering cost pressures despite weak demand; a broad-based rebound would signal improving momentum and could lift USD.
What does the inventory surge mean for stocks and commodities?
Unintended stockpiling suggests production may need to slow if demand doesn’t catch up, a potential headwind for industrials and cyclical commodities. It also increases sensitivity to incoming orders data in the weeks ahead.
Reporting by BPayNews.
Last updated on December 1st, 2025 at 03:23 pm
