Every few months I find myself staring at the latest manufacturing numbers and feeling that same knot in my stomach I had back in 2020. Except this time it’s different. Back then we knew why everything had slammed shut. Today? The economy is supposedly “open” and yet some factory managers are telling survey takers that what they’re living through feels even worse than the pandemic lockdowns.
That sentence stopped me cold when I read it this morning. Not hyperbole from some random commentator – actual anonymous feedback baked into the official reports. And the hard data that came out for November backs up the gloom.
Two Surveys, One Worrying Story
November delivered the usual split personality we’ve grown used to from the manufacturing numbers.
On one hand, the S&P Global purchasing managers’ index managed to stay in expansion territory at 52.2 – technically a “beat” compared to expectations, even if it slipped a bit from October. Production reportedly rose solidly. If you stopped there, you might think everything’s fine.
Then you open the ISM report and reality hits harder. The headline index dropped to 48.2, deeper into contraction and worse than anyone was looking for. That’s now nine straight months below the 50 line – something that hasn’t happened this consistently since the Great Recession days.
But the real trouble shows up when you dig into the details. Because even the “good” survey starts looking shaky once you move past the headline.
Production Up, Buyers Gone Missing
Here’s the part that genuinely worries me: factories are churning out more goods, but nobody seems to want them.
New orders weakened sharply across both surveys. The ISM new orders component fell to levels that historically precede outright production cuts. Meanwhile, warehouses are filling up with stuff that isn’t moving – the kind of involuntary inventory build that managers hate because it ties up cash and usually forces discounts or production throttling later.
In fact, the pace of inventory accumulation right now is the fastest we’ve seen since they started keeping comparable records back in 2007. That includes the pandemic period. Think about that for a second.
“Manufacturers are making more goods but often not finding buyers for these products. This combination of sustained robust production growth alongside weaker than expected sales led to a worryingly steep rise in unsold inventories.”
That’s not some bearish blogger talking – that’s the chief economist at S&P Global describing what his own survey is showing beneath the surface.
The Price Picture Gets Ugly
At the same time companies are making things nobody wants to buy, their costs keep climbing.
The ISM prices paid index jumped again – now sitting at levels that typically signal building inflationary pressure. Combine rising input costs with weakening demand and shrinking profit margins become inevitable. We’ve already started hearing about staff reductions, delayed investments, and companies looking harder at moving production offshore just to stay competitive.
Sound familiar? It’s the textbook definition of stagflation – stagnant growth plus rising prices. Exactly the scenario that gives central bankers nightmares because their usual tools stop working properly.
What Factory Managers Are Actually Saying
Sometimes the anecdotal comments in these reports tell you more than the numbers themselves. November’s batch reads like a cry for help.
- “Transit time on imports seems to be longer” – with customers suddenly wanting everything yesterday
- “We have increased requests from customers to get their orders sooner” – suggesting end-user demand is spotty and last-minute
- “Tariffs and economic uncertainty continue to weigh on demand”
- “Business conditions remain soft as a result of higher costs from tariffs”
- “The unstable market has made pricing fluctuate in a very volatile way”
- “Trade confusion… Conditions are more trying than during the coronavirus pandemic in terms of supply chain uncertainty”
That last one really drives it home. Multiple respondents specifically said the current environment feels worse than COVID for supply chain reliability. When people who lived through 2020-2021 are telling you this feels harder, you have to pay attention.
A Tiny Ray of Hope (Maybe)
There is one small bright spot: business confidence for the year ahead ticked higher from October’s lows. Some of that seems tied to hopes for lower interest rates and greater policy clarity. But even here the surveys caution that uncertainty remains elevated and well below where we started 2024.
In my experience, confidence indicators tend to be lousy timing tools anyway. Companies can feel optimistic about the future while still cutting staff and postponing orders today. The hard data on orders and inventories matters more than the mood music right now.
What This Means for the Bigger Picture
Let’s connect the dots.
We have weakening demand meeting stubbornly high costs. We have production running ahead of sales creating inventory overhang. We have profit margins under pressure and companies already talking about headcount reductions and offshore shifts that will take months or years to implement.
This is how manufacturing recessions begin – not necessarily with a bang, but with a slow grinding erosion that eventually forces broader cutbacks.
And when manufacturing rolls over, it rarely stays contained there. The sector might only be about 11% of GDP these days, but it punches way above its weight in terms of capital spending, transportation demand, and commodity usage. When factories slow, the ripple effects spread fast.
The scarier part? We’re potentially walking into this slowdown with inflation still above target and the Fed only just beginning to ease policy. The margin for error feels incredibly thin.
The Historical Context Is Brutal
Look back at periods when we’ve had similar combinations – rising prices paid, falling new orders, and building inventories – and the track record isn’t pretty.
These setups preceded just about every manufacturing recession of the past forty years. Sometimes the broader economy managed to dodge a full recession (like 2015-2016), but manufacturing still suffered through a painful contraction that lasted 18-24 months and destroyed pricing power across huge swaths of industry.
Right now the signals look more similar to 2000-2001 or 2007-2008 than to the milder episodes. That’s not a prediction – just an observation that the current configuration of data has historically been associated with significant downturns.
Where Do We Go From Here?
The honest answer is nobody knows for sure. Much will depend on how quickly demand either stabilizes or deteriorates further, and whether cost pressures begin to ease.
Lower interest rates would certainly help – cheaper capital makes those growing inventory piles less painful to finance and could encourage restocking if companies believe demand is bottoming. But rate cuts take time to work through the real economy, and they do nothing to solve structural issues around trade policy or labor costs.
In the meantime, the manufacturing sector looks set for a rough winter. The inventory overhang almost guarantees production cuts in the coming months as companies work through excess stock. Those cuts will show up in everything from weaker freight volumes to reduced commodity demand to lower capital goods orders.
For investors, the message seems clear: treat any bounces in cyclical stocks with extreme skepticism until we see sustained improvement in new orders and a peak in the prices paid component. The risk/reward right now heavily favors caution.
Sometimes the most important thing a survey can tell you is that the story the headline numbers are selling isn’t the real story at all. November’s manufacturing reports delivered exactly that message – loud and clear.
The factories are still running today. The question is how many will still be running at full capacity by spring.
I’ve been reading these reports for twenty years, and I can’t remember the last time the disconnect between production and sales looked this severe outside of an actual recession. When factory managers start telling survey compilers that things feel worse than COVID, that’s not something you brush off lightly.
The American manufacturing sector is sending up flare after flare right now. Whether anyone in Washington or on Wall Street chooses to see them is another question entirely.
