|
ISM Manufacturing PMI Indicates Contraction At 48.4%
January 5, 2023
The Supplier Deliveries Index reading of 45.1 percent is 2.1 percentage points lower than the November figure of 47.2 percent; this is the index’s lowest reading since March 2009 (43.2 percent). The Inventories Index registered 51.8 percent, 0.9 percentage point higher than the November reading of 50.9 percent. The New Export Orders Index reading of 46.2 percent is down 2.2 percentage points compared to November’s figure of 48.4 percent. The Imports Index continued in contraction territory at 45.1 percent, 1.5 percentage points below the November reading of 46.6 percent.”
Fiore continues, “The U.S. manufacturing sector again contracted, with the
Manufacturing PMI® at its lowest level since the coronavirus pandemic
recovery began. With Business Survey Committee panelists reporting softening
new order rates over the previous seven months, the December composite index
reading reflects companies’ slowing their output. Demand eased, with the (1)
New Orders Index remaining in contraction territory, (2) New Export Orders
Index markedly below 50 percent, (3) Customers’ Inventories Index in ‘just
right’ territory, and (4) Backlog of Orders Index recovering slightly but
still in strong contraction. Output/Consumption (measured by the Production
and Employment indexes) was neutral, with a combined zero-percentage point
impact on the Manufacturing PMI® calculation. The Employment Index moved
back into expansion, and the Production Index dropped into contraction
territory. Many panelists’ companies confirm that they are continuing to
manage head counts through a combination of hiring freezes, employee
attrition and layoffs. Inputs — defined as supplier deliveries, inventories,
prices and imports — accommodated future demand growth. The Supplier
Deliveries Index indicated faster deliveries, and the Inventories Index
expanded at a faster rate as panelists’ companies continued to effectively
manage the total supply chain inventory. The Prices Index contracted for the
third consecutive month and has declined in each reading since March 2022,
when it registered 87.1 percent.
The U.S. manufacturing sector contracted in December, as
the Manufacturing PMI® registered 48.4 percent, 0.6 percentage point below
the reading of 49 percent recorded in November. “This is the second month of
contraction and, as predicted, will likely be the norm for the PMI® at least
through the first quarter of 2023, with the PMI® expected to be between 48
and 52 percent. Of the five subindexes that directly factor into the
Manufacturing PMI®, two (Employment and Inventories) were in growth
territory, with both gaining a bit of ground. The PMI® registered its lowest
level since May 2020, when the index was 43.5 percent. Of the six biggest
manufacturing industries, only Petroleum & Coal Products registered moderate
growth in December. The Production Index decreased 3 percentage points,
falling into contraction territory. Supply chain congestion continued to
ease, indicated by the Supplier Deliveries Index showing faster deliveries.
Only two of the 10 subindexes were positive for the period,” says Fiore. A
reading above 50 percent indicates that the manufacturing sector is
generally expanding; below 50 percent indicates that it is generally
contracting.
ISM®’s New Orders Index contracted for the fourth
consecutive month in December, registering 45.2 percent, a decrease of 2
percentage points compared to the 47.2 percent reported in November. “Of the
six largest manufacturing sectors, only Transportation Equipment reported
increased new orders. Price and lead time declines as well as backlog
contraction should encourage buyers to reenter the market and sales agents
to be more aggressive in seeking new business, but clearly this did not
occur in December. Slowing in new order rates to adjust for overordering in
2021 and the first quarter of 2022 has been underway since March of this
year,” says Fiore. (For more on lead times, see the Buying Policy section of
this report.) A New Orders Index above 52.9 percent, over time, is generally
consistent with an increase in the Census Bureau’s series on manufacturing
orders (in constant 2000 dollars).
The Production Index registered 48.5 percent in December,
3 percentage points lower than the November reading of 51.5 percent,
indicating contraction after 30 consecutive months of growth. “Of the top
six industries, only two — Transportation Equipment; and Machinery —
expanded in December. The Production Index contraction is a strong indicator
that backlog reduction is not sufficient to maintain production growth.
Additionally, as customers’ inventories have reached ‘about right’ levels,
panelists are now concerned about future production potential,” says Fiore.
An index above 52.4 percent, over time, is generally consistent with an
increase in the Federal Reserve Board’s Industrial Production figures.
ISM®’s Employment Index registered 51.4 percent in
December, 3 percentage points higher than the November reading of 48.4
percent. “The index indicated employment expanded after contracting for one
month. Of the six big manufacturing sectors, only two (Petroleum & Coal
Products; and Machinery) expanded. Labor management sentiment continued to
shift, with a number of panelists’ companies reducing employment levels
through hiring freezes, attrition — and since November — layoffs. In
December, layoffs were mentioned in 11 percent of employment comments, down
from 14 percent in November, likely due to the holiday period. Turnover
rates improved marginally, recording their lowest level (27 percent of
comments) since tracking began in June 2021. For those companies expanding
their workforces, comments continue to support an improving hiring
environment,” says Fiore. An Employment Index above 50.5 percent, over time,
is generally consistent with an increase in the Bureau of Labor Statistics (BLS)
data on manufacturing employment.
The delivery performance of suppliers to manufacturing
organizations was faster for a third straight month in December, as the
Supplier Deliveries Index registered 45.1 percent, 2.1 percentage points
lower than the 47.2 percent reported in November. This reading indicates the
fastest supplier delivery performance in 165 months (March 2009, when the
index registered 43.2 percent). Of the top six manufacturing industries,
only Food, Beverage & Tobacco Products reported slower deliveries. “In
December, 88 percent of panelists reported ‘same’ or ‘faster’ delivery
times. Panelists’ comments overwhelmingly confirmed that suppliers performed
better in December compared to previous months, continuing an improvement
trend that began in May 2022,” says Fiore. A reading below 50 percent
indicates faster deliveries, while a reading above 50 percent indicates
slower deliveries.
The Inventories Index registered 51.8 percent in
December, 0.9 percentage point higher than the 50.9 percent reported for
November. “Manufacturing inventories expanded at a faster rate compared to
November. Of the six big manufacturing industries, two (Food, Beverage &
Tobacco Products; and Computer & Electronic Products) increased
manufacturing raw material inventories in December. Panelists’ companies
continue their efforts to reduce their total supply chain inventories in
preparation for a further economic slowdown, indicated by the contraction in
new orders, slow expansion in manufacturing inventories and the ‘just right’
level of customers’ inventories,” says Fiore. An Inventories Index greater
than 44.4 percent, over time, is generally consistent with expansion in the
Bureau of Economic Analysis (BEA) figures on overall manufacturing
inventories (in chained 2000 dollars). |
Terms of Use | Copyright © 2001 - 2023 CONSTITUENTWORKS SM CORPORATION. All rights reserved. | Privacy Statement
Economic activity in the manufacturing sector contracted in December for the
second consecutive month following a 29-month period of growth, say the
nation's supply executives in the latest Manufacturing ISM® Report On
Business®.