Will Manufacturing Have a Down Year in 2023?
2022 has been a turbulent year. From geopolitical tensions, inflation, and economic uncertainty to continued supply chain disruptions — the year has presented myriad struggles to manufacturers. And, unfortunately, the challenges are likely to continue in 2023.
Key indicators are pointing toward broad economic pullback, and manufacturing industry analysts are confident in their predictions of contraction in the coming year.
A look back at manufacturing in 2022
While manufacturing grew slowly in 2022, with an increase in output of 4%, the threat of decline is looming. According to research from Interact Analysis, the gross output of the manufacturing sector will likely decline by $200 billion in 2023.
Why are predictions so grim? The answer lies in this year’s ISM reports.
Heading into the new year, manufacturing has fallen to its lowest level since May 2020, when the world saw the worst of the pandemic. The manufacturing Purchasing Managers’ Index (PMI) has settled near 50, and it stands poised to dip into contraction territory following a 10-point decline in the past 12 months.
Many analysts don’t see these trends changing anytime soon. They’re predicting a manufacturing pullback for 2023 — and, in fact, this contraction has already manifested in Europe’s contracting manufacturing sector.
Growing catalysts for economic contraction
There are several catalysts for the imminent slowdown in the manufacturing sector. Economic pullback isn’t the result of any single force; rather, it’s a combination of countless factors working to make things more challenging for manufacturers and most economic sectors.
In the U.S., inflation and supply chain disruptions are hitting manufacturers hard. Inflation raises the price of materials, while supply chain bottlenecks prevent manufacturing from keeping pace with demand. To make things worse, ongoing shortages continue to beleaguer key manufacturing sectors, including tech, automotive, aerospace, and construction.
Abroad, the Russia-Ukraine conflict contributes to even more disruption, as products made or found in those regions — including important raw materials like metals — are now in shorter supply. Meanwhile, trade tensions are beginning to spark again as the U.S. seeks to decouple itself from China and bring supply chains closer to home.
Preparations for an uncertain future
While manufacturers and industry analysts are predicting a slowdown in 2023, there are efforts underway to rectify an otherwise discouraging situation and prevent downturn. After all, recessions are defined as such only after they’ve passed; we’re in the speculative stages right now.
Manufacturers can lessen the impact by protecting their supply chains, ensuring their structure is fully integrated and digitized; closely monitoring suppliers; and looking for signs of trouble in the market to mitigate risks. Reinvesting in production capabilities and modernizations will pay dividends in the long run, even if a significant slowdown can be avoided in 2023.
