The Institute for Supply Management® (ISM®) has issued the December 2022 Manufacturing ISM® Report On Business®, and it reveals notable insights into the current state of the manufacturing sector. Timothy R. Fiore, Chair of the Institute for Supply Management® Manufacturing Business Survey Committee, provides an analysis of the report:
In December, the Manufacturing PMI® registered at 48.4 percent, indicating a contraction, and a 0.6 percentage point decrease from the November reading of 49 percent. This figure is significant as it signals a contraction in the overall economy after a sustained 30-month period of expansion. This marks the lowest Manufacturing PMI® reading since May 2020 when it was at 43.5 percent.
Here’s a breakdown of key sub-indexes from the report:
- The New Orders Index stood at 45.2 percent, marking a contraction and a 2 percentage point decline from November’s 47.2 percent.
- The Production Index recorded a reading of 48.5 percent, indicating a contraction with a 3-percentage point decrease from the previous month’s figure of 51.5 percent.
- The Prices Index registered 39.4 percent, signaling a decrease and a 3.6 percentage point drop from November’s 43 percent. This marks the lowest reading for this index since April 2020.
- The Employment Index, which dropped into contraction territory in November at 48.4 percent, rebounded to an expansionary reading of 51.4 percent in December, representing a 3 percentage point increase.
- The Supplier Deliveries Index recorded a reading of 45.1 percent, indicating faster deliveries and a 2.1 percentage point drop from the previous month’s figure of 47.2 percent. This marks the lowest reading for this index since March 2009.
- The Inventories Index stood at 51.8 percent, signaling growth with a 0.9 percentage point increase from November’s 50.9 percent.
- The New Export Orders Index recorded a reading of 46.2 percent, indicating a contraction and a 2.2 percentage point decline compared to November’s figure of 48.4 percent.
- The Imports Index remained in contraction territory at 45.1 percent, reflecting a 1.5 percentage point decrease from November’s 46.6 percent.
Timothy R. Fiore further elaborates that the Manufacturing PMI® reflected the continuing contraction of the U.S. manufacturing sector. The downward trend in new order rates over the past seven months has led to a decrease in the output of companies. Several significant observations include:
- Demand has lessened, with the New Orders Index staying in contraction territory.
- The New Export Orders Index remains significantly below the 50 percent threshold.
- The Customers’ Inventories Index is in the “just right” territory, and the Backlog of Orders Index, while showing slight improvement, still indicates substantial contraction.
- Output and consumption, as measured by the Production and Employment indexes, had a neutral impact on the Manufacturing PMI® calculation, essentially canceling each other out.
- The Employment Index returned to expansion, while the Production Index transitioned into contraction territory.
Many companies continue to manage their workforce levels through measures such as hiring freezes, employee attrition, and layoffs. Input factors related to supplier deliveries, inventories, prices, and imports are adjusting to accommodate future demand growth. The report indicates that the manufacturing sector has reached the end of the year with a primary focus on managing headcounts and the total supply chain inventory. The Prices Index contracted for the third consecutive month and has been on a declining trend since March 2022.
Fiore highlights that only one of the six major manufacturing industries, namely Petroleum & Coal Products, exhibited moderate growth in December. Manufacturing has now contracted for two consecutive months following a 29-month expansion period.
In summary, the December 2022 Manufacturing PMI® report reflects ongoing challenges and shifts in the manufacturing sector. The report shows that U.S. manufacturing faced a second consecutive month of contraction, with challenges in new order rates, production, and demand. The overarching focus of many companies is on managing their workforce and supply chain inventory as they close out the year, with an eye on strengthening their order books for the upcoming months.
The report further highlights fluctuations in commodities’ prices and their availability, indicating the ongoing complexities and supply chain challenges affecting the manufacturing sector. As companies adapt to these changing dynamics, close monitoring of the manufacturing sector is essential to assess its continued performance and recovery.
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