June 2023 Manufacturing Report: Understanding the Latest Trends
For the eighth consecutive month, the U.S. manufacturing economy contracted. Figures from the June 2023 Manufacturing ISM Report On Business outlay growing concerns not only for manufacturing’s year-to-date performance but also for the second half of the year ahead. Notably, the June report lagged in key areas, solidifying fears of an economic slowdown, reduced demand, and order sluggishness.
June manufacturing by the numbers
Fears of protracted economic slowness are evident across the board in the June report. Production dropped 4.4 points for the month, dragging down employment by 3.3 points. While new orders rose 3 points, they did so at the expense of inventories, which fell by 1.8 points. The biggest swing belonged to customer inventories, which plunged 5.2 points into contraction territory.
As of June, every metric in the report is in economic contraction. Four of the 10 metrics comprising the overall manufacturing purchasing managers’ index (PMI) began trending into contraction territory in the past month, signaling potentially turbulent times to come. Of the six major manufacturing industries, only transportation equipment registered growth in June.
One executive surveyed in the report summed up the economic outlook in less-than-optimistic terms: “The slowing U.S. economy is causing the business forecast to be revised/reduced for the remainder of 2023. Customers are less inclined to purchase far in advance.” It’s a sentiment shared by most respondents and indicates a slowdown is still to come in the back half of 2023.
An uphill battle
With many metrics in contraction and conservative expectations across the industry, manufacturing is all but certain to find itself in a doldrum period through the summer months. Even the report confirms, “Demand remains weak, production is slowing due to lack of work, and suppliers have capacity.”
The forces at work behind the depressed manufacturing economy are many and complex. Inflationary pressures, the threat of ever-rising interest rates, and global considerations like the Ukraine conflict are grinding manufacturing to a halt not just in the United States but across the world. As a result, the PMI is now back to the lowest post since the COVID-19 pandemic.
Facing these challenges and more, the manufacturing industry has an uphill battle to fight in the coming months.
Be proactive
In preparation for protracted slowness and a continued downturn, many manufacturers have cut their forecasts for the rest of the year. This signals another impending red flag for the manufacturing economy: the potential for future layoffs. It’s a trend mirroring actions in the broader economy and echoes concerns a recession could soon become a reality.
While the situation may seem bleak, remember forewarned is forearmed. Looking ahead, manufacturers can take proactive steps to mitigate the effects of the slow economy. By focusing on cost-cutting measures and optimizing their supply chain, producers can help ensure the longevity of their business. Defensive pivots today can be enough to weather stagnation in the immediate future.
