July Manufacturing Report: Is an Economic Rebound on the Horizon?
Entering the last few months of the year, manufacturers face a conflicted landscape. Expectations and outlooks for stabilization are high based on historically positive demand trends. But 2023’s current trajectory of contraction has many doubting a rebound. Unfortunately, the July 2023 Manufacturing ISM Report On Business reveals even more uncertainty.
A closer look at July’s numbers
July’s overall purchasing managers’ index (PMI) closed just 0.4 points higher than in June — the 12-month low point. The report was buoyed by positive gains in new orders and production, which rose 1.7 and 1.6 points, respectively. As the industry braces for continued contraction, defensive metrics — including a 2.1-point increase in inventories and a 2.5-point rise in customer inventories — provided optimism.
Poor indicators were also prevalent in the report. Employment dropped a staggering 3.7 points, while prices rose 0.8 points. The trade deficit grew worse, as imports held steady with a 0.3-point increase, and new export orders fell 1.1 points. Meanwhile, all metrics measured by the report remained in contraction territory for the second consecutive month.
A lethargic outlook for manufacturing
On paper, manufacturing’s outlook continues to be a mixed bag. But the clear sentiment among manufacturers is the coming months will be cumbersome. One executive in the chemical products sector stated, “Sales in our industry are extremely slow entering into the second half of the year, and no upturn is expected until at least the fourth quarter.”
A counterpart in the computer and electronic products sector expressed, “Current U.S. market conditions of inflationary and recessionary tactics (are) affecting overall business. Customers are reducing or not placing orders as forecast, (putting) internal focus on reducing financial liabilities and overhead costs.”
With stagnation projected to continue and other factors such as employment and material costs working against them, manufacturers are preparing for a protracted downturn. While some upturn is expected in cyclical and seasonal sectors, broader economic headwinds must be addressed before manufacturing ascends back into growth mode.
Labor remains a contentious point
One key factor shaping manufacturing’s long-term outlook through the end of the year and beyond is the labor market. Besides a general shortage of qualified, skilled laborers, the cost of attracting and retaining laborers is reaching new heights. As manufacturers face the prospect of rising wages on top of increasing production costs, there’s a real threat of market stagnation until these costs balance out.
Labor shortages are also a hindrance. While the current production slump is largely a product of lagging demand and higher costs, manufacturers may struggle to keep up with expectations when these issues subside. Even as economic factors resolve themselves, manufacturing’s recovery could be stunted by persistent workforce shortages.
Preparing for continued stagnation
Although there’s no clear indication of how manufacturing will perform in the last few months of 2023, sentiment suggests stagnation will continue. If this is the case, producers will need to make defensive investments in technology, processes, and people. By controlling the variables, forward-thinking producers can set themselves up for success as broader economic factors improve in 2024 and beyond.
