U.S. manufacturing shrinks in November

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U.S. manufacturing shrank in November to its weakest level since July 2009, one month after the recession ended. Worries about automatic tax increases related to the so-called "fiscal cliff" in the new year cut demand for factory orders and manufacturing jobs.

The Institute for Supply Management said Monday that its index of manufacturing conditions fell to a reading of 49.5. That's down from 51.7 in October.

Readings above 50 signal growth, while readings below indicate contraction. Manufacturing grew in October for only the second time since May. The ISM is a trade group of purchasing managers.

A gauge of new orders dropped to its lowest level since August, a sign that production could slow in the coming months. Manufacturers also sharply reduced their stockpiles, indicating companies expect weaker demand.

"Today's report suggests that the manufacturing sector is likely to remain a weak point in the recovery for a few months yet," Jeremy Lawson, an economist at BNP Paribas, said in a note to clients.

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The weak manufacturing survey overshadowed other positive economic reports. Greater home building boosted U.S. construction spending in October by the most in five months. Manufacturing activity in China grew in November for the second straight month. And U.S. auto sales rebounded last month after superstorm Sandy held sales back in October.

U.S. manufacturers are concerned about the fiscal cliff, the ISM survey noted. That's the name for sharp tax increases and government spending cuts that will take effect in January if Congress and the Obama administration fail to strike a budget deal before then.

Worries about the fiscal cliff have led many companies to pull back this year on purchases of machinery and equipment, which signal investment plans. The decline could slow economic growth and hold back hiring in the October-December quarter.

Companies "are just backing off and not making any moves until things clear up a bit," Bradley Holcomb, chairman of the ISM's survey committee, said.

Superstorm Sandy had little impact on factory activity last month, according to the ISM survey. The storm hit the East Coast on Oct. 29.

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