By Xavier Fontdegloria

Factory activity in the U.S. swung to contraction in November for the first time since the Covid-19 pandemic brought the economy to a near halt in spring 2020, suggesting the goods-producing sector is struggling due to rapidly weakening demand, data from a purchasing managers survey showed Thursday.

The Institute for Supply Management said its index of U.S. manufacturing activity decreased to 49.0 in November from 50.2 in October, the lowest reading since May 2020 and the first time since then that it fell below 50, the threshold that separates expansion from contraction.

The index came in below the 49.8 consensus forecast from economists polled by The Wall Street Journal.

November's data reflects companies are preparing for future lower output, said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.

The U.S. factory sector has been cooling in the last few months due to softer demand for goods as high inflation and rising interest rates weighs on investment.

November's ISM data, which is based on a poll among manufacturers across the U.S., signaled the contraction in activity was driven mainly by a decline in new orders, work backlogs and employment, while production rose only slightly.

The production index fell to 51.5 in November from 52.3 in October, signaling modest output growth. The new orders index fell to 47.2 from 49.2, pointing to a faster decline in new orders.

"Customer demand is softening, yet suppliers are maintaining high prices and record profits," said one respondent from the computer and electronic products sector.

The employment index fell to 48.4 from 50.0, in a sign that firms on average shed jobs in November. "Panelists' companies confirm that they are continuing to manage head counts through a combination of hiring freezes, employee attrition, and now layoffs," Mr. Fiore said.

The supplier deliveries index rose to 47.2 from 46.8, but continued to indicate faster vendor lead times as supply-chain bottlenecks ease. The prices index fell to 43.0 from 46.6, pointing to a decrease in prices as inflation pressures abate.

"Order backlogs, prices and now lead times are declining rapidly, which should bring buyers and sellers back to the table to refill order books based on 2023 business plans," Mr. Fiore said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

December 01, 2022 10:43 ET (15:43 GMT)