US Manufacturing Sector Shows Worst Performance in Three Years
Lede
The Institute for Supply Management (ISM) survey revealed that U.S. manufacturing activity had fallen to its lowest level in almost three years, raising concerns of a forthcoming recession.
Summary
- All sub-components of the ISM's manufacturing Purchasing Managers Index (PMI) were under the 50-point threshold for the first time since 2009, a sign of a contraction in manufacturing.
- Economists predict that the performance of the service sector, which has remained consistent with a growing economy, will affect the general health of the economy.
- Reports indicate that manufacturing expanded at a 4.5% annualized rate in Q4 2022; however, recent data suggests a moderate decline.
- The new order sub-index fell from 47.0 to 44.3 last month, indicating that demand could reduce following the closure of two regional banks and the tightening of lending standards.
- Work backlogs shrank due to reduced demand, while the measure of supplier deliveries dropped to 44.8, the lowest level since March 2009.
- Comments from manufacturers reveal downbeat projections, with many reporting a slowdown in sales and new orders.
- Only petroleum, coal products, machinery, printing, related support activities, miscellaneous manufacturing, fabricated metal products, and primary metals registered growth in March.
- The proportion of manufacturing gross domestic product with a composite PMI calculation at or below 45%, a good barometer of overall manufacturing sluggishness, was 25% in March, compared to 10% in February.
- While economic statistics in the rest of the economy have not shown convincing signs of a recession, 70% of manufacturing gross domestic product was contracting in March, with more industries contracting strongly than the previous month.
- Prices paid by manufacturers dropped to 49.2 from 51.3 in February, indicating inflation at the factory gate is retreating.
- Tighter credit conditions caused by Federal Reserve rate hikes to fight inflation have raised borrowing costs and cooled demand for goods.
- Oil prices increased after Saudi Arabia and other OPEC+ oil producers announced further oil output cuts of around 1.16 million barrels per day, and prices for services remain high.