The inside of Boeing's Everett, Washington factory near Seattle. Flickr (CC BY-SA 2.0)
U.S. manufacturing activity slid further into contraction at the end of 2022, according to the Institute for Supply Management’s December survey of supply chain executives.
After falling into contraction in November for the first time since the pandemic, the ISM reports its index of manufacturing activity fell another 0.6% in December to a reading of 48.4% -- a 31-month low.
Any reading below 50 signals contraction.
The ISM reports new orders and output fell further into contraction in December to their lowest reading since May 2020, suggesting a continued softening of demand. The ISM’s New Orders index eased another 2 percentage points to a reading of 45.2%, while production also sank further into contraction, down 3% to a reading of 48.5%.
Prices fell another 3% to a reading of 39.4%, the lowest reading since April 2020, while both exports and imports contracted.
Notably in December, employment bounced back into expansion, with the ISM’s employment index increasing 3% to a reading of 51.4%. Supplier deliveries posted their best performance since March 2009.
Said Timothy Fiore, the Chairman of the ISM, “Panelists’ companies continue to judiciously manage hiring. The month-over-month performance of supplier deliveries was the best since March 2009. Average lead time remained 32 percent above the previous trough for capital expenditures and 37 percent for purchased materials; both are too high. Managing head counts and total supply chain inventories remain primary goals as the sector closes the year. More attention will be paid to demand as we enter the first quarter to shore up order books for the next six to 12 months.”
In December, just two of eighteen industries reported growth: petroleum products and primary metals. Industries that posted the sharpest contraction included wood products, fabricated metals products, chemical products, paper products; and plastics & rubber products.
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers revealed continued issues with lack of skilled workers and supply chain issues, while overarching concerns over slowing demand and an uncertain economic climate remained paramount amid glimmers of optimism for 2023.
One executive in the chemical products industry reported, “Customer demand continues to be depressed. While 2023 pipeline is looking very positive, current demand is significantly down.”
Another in the transportation equipment sector stated, “Orders are really slowing down in the original equipment sector. We haven’t seen a major output decrease because we are still eating away at our back orders.”
One panelist in the machinery sector stated, ““The continued uncertainty in the economy has resulted in customers delaying their commitments for capital purchases, which is impacting our fourth quarter sales and lowering our forecast for the first quarter of 2023.”
While another in the miscellaneous sector reported, “Overall, supply chain conditions have stabilized tremendously since the fourth quarter of 2021. Issues remain, but the list is quite a bit shorter. Customer demand is very strong, and the outlook is positive for 2023. There is large focus on margin recovery after this period of high inflation.”
And on a more positive note, one executive in the primary metals industry had this to say “Finished the year strong, and we are pleased with how the year shaped up.”
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