Economic activity in US manufacturing and the broader economy contracted in December Institute for Procurement Management (ISM). December was the first month since May 2020 that ISM data showed the overall economy contracted.
ISM on Wednesday (4 January) released the ISM Manufacturing December Annual Report, which showed that the Purchasing Managers’ Index (PMI) fell 0.6 percentage point to 48.4% in December from November. Manufacturing also contracted in November after 29 straight months of growth. The December PMI was the lowest since reading 43.5% in May 2020. A PMI reading below 50% indicates the manufacturing sector is contracting and a reading below 48.7% indicates the overall economy is contracting.
“The past relationship between the manufacturing PMI and the macro economy shows that the manufacturing PMI for December (48.4%) corresponds to a 0.1% annualized decline in real gross domestic product (GDP),” said Timothy Fiore , Chair of the ISM Manufacturing Business Survey Committee.
The December report shows that new orders and production fell, backlogs fell, supplier shipments increased and raw material stocks rose, but customer stocks were too low. Prices fell, exports and imports fell.
“US manufacturing contracted again, with manufacturing PMI at the lowest since the coronavirus pandemic recovery began,” Fiore said. “As business survey committee panellists reported declining new order rates over the preceding seven months, the December composite index reading reflects the slowdown in firms’ output.
“Many panelists’ companies confirm that they continue to manage their workforce through a combination of hiring freezes, turnover and layoffs,” he added. “Monthly supplier shipment performance was the best since March 2009. Average lead time remained 32% above previous lows for investments and 37% for purchased materials; both are too high. Managing headcount and total supply chain inventories remain key objectives as the sector closes the year. As Q1 begins, more attention will be paid to demand to support order books for the next six to 12 months.”
Only the oil and coal industry recorded moderate growth among the top six manufacturing industries in December. The primary metals industry also recorded growth.
Industry respondents had mixed comments on customer demand, supply chain issues and business prospects:
In the computer and electronics industry, one respondent said: “The shortage of qualified labor is enormous and puts great pressure on the existing workforce. Electronic components continue to be a major problem in the supply chain, especially when the component you need is not the current hot technology.”
A respondent in other manufacturing said: “Overall, supply chain conditions have stabilized tremendously since the fourth quarter of 2021. Problems remain, but the list is a lot shorter. Customer demand is very strong and the outlook for 2023 is positive. After this period of high inflation, a big focus is on margins recovering.”
A chemical industry respondent said customer demand is declining but the “pipeline for 2023 looks very positive.” A respondent from the transportation equipment industry noted that orders have slowed but production has not yet declined as backorders are cleared.
A respondent from the food, beverage and tobacco industry said: “Lead times are returning to normal for most of our suppliers, while some of our smaller suppliers are struggling to have enough staff to keep up with orders.”
A machine industry respondent said economic uncertainty has caused customers to delay capital purchases and this has impacted fourth-quarter sales and first-quarter guidance for the year as it slows. A respondent from the electrical appliances, appliances and components industry said, “New trade restrictions on Chinese technology have impacted our business and plans for the future.”
A non-metallic mineral products industry respondent said: “We are trying very hard to keep the wheels turning to finish the year strong. Production facilities are approaching their annual downtime and some TLC is required to keep things running.” A respondent in the primary metals industry said, “We ended the year strong and we are pleased with how the year has progressed.”
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