Manufacturing activity continued to lag in November amid a decline in inventories and new orders, according to the latest ISM Manufacturing reading released Monday.
The reading came in at 48.1 vs. an expectation of 49.4 and the previous month's reading of 48.3.
Though the level is usually reported as a simple number, it actually denotes the percentage of manufacturers planning to expand operations. A reading below 50 represents contraction; November was the fourth straight month below the expansion level.
Stocks fell on the report, with the Dow Jones Industrial Average off more than 200 points in late morning trading.
New orders slumped to 47.2, down 1.9 percentage points from October's 49.1. Inventories, which are a key input for gross domestic product, came in at 45.5, down 3.4 points from the previous month.
The numbers come amid speculation about the pace of U.S. growth.
Recession worries have ebbed from earlier in the year, when the Treasury yield curve was inverted and flashing what has been a reliable 12-month recession indicator for the past 50 years. GDP growth has averaged around 2.4% in 2019, with the third quarter coming in at 2.1%. However, most forecasters expect the fourth quarter to come in under 2%.
The report shows that manufacturing "is stuck in a mild recession with little prospect of a real near-term revival. This will weigh on job growth and capex over the next few months, to the point where we are not ready to rule out a further [Federal Reserve] easing in January," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.
Manufacturing is considered a reliable bellwether for how the rest of the economy is doing, though it accounts for only about one-fifth of GDP.
Nearly all of the key ISM indicators were at contraction levels in November.
Employment was at 46.6, down 1.1 point for the month, while export orders fell 2.5 points to 47.9 as the U.S. and China continue to look for a resolution to a trade dispute that began more than a year and a half ago.
Supplier deliveries was one of the few metrics in expansion, rising 2.5 points to 52.
In a related release, the Markit manufacturing reading, known as the Purchasing Managers Index, indicated expansion, coming in at 52.6, just above expectations and a bit better than the 51.3 October reading.
The Markit PMI growth reflected an uptick in production and new orders as well as strength in employment indicators. It was the strongest reading in seven months.
Investors will get a close look Friday at the impact the manufacturing slowdown and trade war have had on the broader economy. The Labor Department's nonfarm payrolls report comes down that day, with economists surveyed by Dow Jones expecting a sharp rebound in growth to 187,000 from November's 128,000.