U.S. Manufacturing Sector Continues to Fail, End 2022

In the face of falling output, client demand and further weakness in the U.S. Manufacturing sector, 2022 saw a further decline. recession fears.

In December, the S&P Global U.S. Manufacturing Purchasing Managers’ Index (PMI) (pdf) tumbled to 46.2, down from 47.7 in November; anything below 50 indicates contraction. This matched Trading Economics’ expectations of 46.2.

This was the biggest monthly contraction of factory activity since May 2020. It was driven by slower domestic client demand due to economic uncertainty and inflationary pressures. While purchasing activity fell, work order backlogs declined sharply. Employment levels improved slightly.

The PMI report shows that foreign demand slowed down due to a stronger dollar and other global economic concerns. Accordingly, export orders decreased at the lowest rate since September.

Even though output expectations rose to a 3-month high, businesses are still concerned about the effects inflation and slowing future demand.

“The manufacturing sector posted a weak performance as 2022 was brought to a close, as output and new orders contracted at sharper rates,” said Siân Jones, senior economist at S&P Global Market Intelligence, in the report. “With the exception of the initial pandemic period, stocks of purchases fell at the steepest rate since 2009.”

“Slower upticks in inflation signal the impact of Federal Reserve policy on prices, but growing uncertainty and tumbling demand suggest challenges for manufacturers will roll over into the new year,” She added.

The U.S. manufacturing sector is not the only one experiencing downward trends. The J.P. Morgan Global Manufacturing PMIpdfThe international manufacturing industry continues to fall for five consecutive months, with output, new orders and employment levels continuing to plummet. Global trade volumes also declined in December.

Only seven of the 29 nations listed in last month’s report maintained a PMI print in expansion territory: India, Philippines, Russia, Mexico, Colombia, Indonesia, and Australia.

The next critical report will be the Institute for Supply Management’s (ISM) Manufacturing PMI. It is expected that it will drop further to 48.5 from 49 in November.

What will the future look like for manufacturing in 2023

Manufacturing is still facing a multitude of challenges such as inflation and economic uncertainty.

“The industry is currently experiencing concerns related to inflation and economic uncertainty,” In its 2023 latest edition, Deloitte wrote report. “In addition, manufacturers continue to grapple with talent challenges that may limit the industry’s growth momentum. Moreover, supply-chain issues, including sourcing bottlenecks, global logistics backlogs, cost pressures, and cyberattacks, will likely remain critical challenges in 2023.”

Despite these obstacles that may prove difficult to overcome the ISM is positive about the manufacturing sector for this year. It cites rising revenues and capital expenditures as well as capacity utilization.

“Manufacturing’s purchasing and supply executives expect to see overall growth in 2023. They are pessimistic about overall business prospects for the first half of 2023, but project growth returning in the second half,” The ISM Report on Business stated last month.

In 2023, another important trend could be government subsidies to the global manufacturing industry.

The Inflation Reduction Act, which included almost $500 billion to boost domestic manufacturing, was approved by President Joe Biden and Congress in 2012. This consisted of $437 billion in climate-related spending and almost $53 billion for a semiconductor-subsidy program.

China, the world’s second-largest economy, plans to spend It spends about $50 billion per annum on the Made in China 2020 initiative. This program provides government subsidies for 10 sectors including aerospace, machine, new energy vehicles, railway equipment, and machinery. Many large Chinese companies already receive subsidies worth hundreds of millions of dollars, including Sinopec, SAIC Motor, and Semiconductor manufacturing International Corp.

The leaders of the European Union spent most of 2022 working to develop a new Europe. “Made in Europe” campaign to counter the U.S. government’s efforts to spend hundreds of billions of dollars in manufacturing.

Commission President Ursula von der Leyen proposed A recent letter stated that it was time to make changes in state subvention rules “to ensure a simpler, faster, and even more predictable state aid framework.” One of her ideas involves a European Sovereignty Fund. However, several bloc members, including Denmark and Austria, are against such a fund.

But could manufacturing fall short of expectations by the year’s end?

When speaking in interview with CBS’ “Face the Nation,” Kristalina Georgieva, chief of International Monetary Fund, warned that one third of the world’s economy would slip into recession in 2012. “even countries that are not in recession, it would feel like recession for hundreds of millions of people.”

The United States could avoid a downturn but instead face a “slowcession,” says Moody’s Analytics chief economist Mark Zandi (pdf).

Andrew Moran has been writing for over a decade about finance, economics and business. He is also the author of “The War on Cash.”