Manufacturing ISM Settles at a Low Point in December 2022
Each month, the Manufacturing ISM® Report On Business® sets the tone for the state of the manufacturing economy. It provides insight into the previous month’s economic data to help guide expectations for the month ahead. Or, in the case of the December 2022 report, it sets the tone for the year to come. Unfortunately, the December 2022 report paints a picture of economic distress — one that’s likely to persist in 2023.
Recapping the December 2022 report
After pulling back throughout 2022, the U.S. manufacturing sector contracted for the second consecutive month in December. The year-end report verifies November’s foray into contraction territory wasn’t a fluke; rather, it was the beginning of a protracted economic picture that’s gradually becoming clearer.
December’s Manufacturing PMI slid 0.6% down to 48.4% — the lowest since May 2020, which represents the most volatile point in the global pandemic. And while times may not seem dire, economic figures suggest the worst is yet to come.
Figures across the Supplier Deliveries index remain in contraction. The New Orders index slipped again, reading at 45.2% compared to November’s recorded 47.2%. The Production index also pulled back to 48.5% — a 3% decrease from November. While the Employment index bounded up 3% into expansion territory, it was a lone bright spot in the report.
Survey says: Outlook uncertain
The rate of contraction is increasing, which fuels growing concern from customers and producers alike about an uncertain economic climate for 2023. In a survey of manufacturing executives, several factors present persistent trouble:
- Despite gains in employment, skilled labor shortages are putting strain on existing personnel, lowering production capacity. Producers are struggling to stay staffed and keep pace with orders.
- While not true of all sectors, customer demand is depressed in several key areas thanks to continued uncertainty in the economy. This is causing further distress in delayed capital purchases.
- While many supply chain issues have stabilized tremendously, problems remain. As materials-driven industries rebound from high inflation in 2022, it could take time for purchasing and deliveries to even out in 2023.
Overall, a feeling of economic uncertainty weighs heavily on manufacturers. While it’s only the second consecutive month of economic contraction, it’s very likely not the last. With demand slumping and anxieties surrounding recession affecting purchasing decisions, 2023 is shaping up to be a challenging one for the manufacturing sector.
Talk of recession is coming to fruition
Manufacturing is a huge contributor to the country’s overall GDP, and its continued contraction shows that we’re likely already in the early stages of a recession. 2023’s first quarter will likely be marked by slipping demand and, in turn, fewer orders. Manufacturers must brace for impact in the year to come by tightening up their value streams and pursuing value-added investments in technology, talent, enterprise assets, and other smart defensive plays.
2023 is likely to be rough, but it needn’t be devastating for manufacturers that take the time to plan and prepare for hardship.