U.S. manufacturers are heading into 2023 with a raft of new challenges as business conditions shift. Wondering what the latest data tells us? In today's Big Picture report, we're exploring the key takeaways from the latest NAM survey, in which manufacturers weigh in on the recession threat, and examining some crucial insights on labor, output, prices, optimism, and regional performance from January's most critical manufacturing business reports.
Executive Summary
• U.S. manufacturing activity fell further into contraction in December, despite notable improvements in employment and supplier deliveries.
• Manufacturers added fewer jobs in December as job losses in nondurable goods offset strong job creation in durable goods—particularly in the U.S. automotive sector.
• 62% of U.S. manufacturers expect the economy to slip into recession in 2023
• Despite the threat of recession, 65.3% are planning capital spending on new equipment and technology.
• The number of unfilled manufacturing jobs remains historically high at 759,000 open positions.
• With the exception of the New York region, regional manufacturing surveys show an improved manufacturing climate overall compared to last month, though executives are not as optimistic compared to previous months.
NAM Survey: U.S. Manufacturers Weigh in on Recession Threat
First up in our Big Picture report, the National Association of Manufacturers (NAM) released its quarterly Manufacturers Outlook Survey at the beginning of this month and the results are revealing. The NAM’s fourth-quarter survey demonstrates a challenging environment for manufacturers as inflation, supply chain disruption and a labor market crisis continue to impact the sector. Notably, manufacturers are also concerned over Congress’s failure to act on key manufacturing priorities such as tax reform.
The NAM survey found that 62% of manufacturers expect the U.S. economy to fall into recession in 2023. Meanwhile, confidence has declined, with 68.9% having a positive outlook for their company—the lowest reading since the third quarter of 2020.
The good news? Despite the threat of recession, manufacturers are still looking to invest heavily in their operations. Specifically:
• 65.3% are planning capital spending on new equipment and technological investments
• 55.1% are looking to hire new employees
• 52.1% are expecting to invest in R&D
• 38.6% are looking to spend on new structures and existing facilities.
Said NAM President and CEO Jay Timmons, “The majority of manufacturers expect a recession this year. Congress failed to act on essential tax reforms, which complicates investment, increase inflationary pressures, and could stifle economic growth. Much needed permitting reforms and provisions to strengthen our ability to conduct research and development, buy machinery and finance job-creating investments—which we need to promote growth within the sector—were left on the cutting room floor last year. Those reforms, combined with manufacturers’ ongoing efforts to inspire, educate and empower the future workforce, are critical to our competitiveness.”
Hiring in Manufacturing Slows Further
Hiring in the U.S. manufacturing sector decelerated in December, according to the latest report by the Labor Department. The sector added 8,000 jobs, roughly half the number of jobs added in November, and a quarter of October’s 32,000 new j obs.
Read more: Manufacturing Industries That Gained and Lost Jobs in December
In December, employment gains were overwhelmingly led by the transportation equipment sector, which added 15,000 positions. Nonmetallic mineral products, machinery, fabricated metals, and food processing also added jobs.
These gains were offset by losses largely in nondurable goods, including chemicals, petroleum products, miscellaneous non-durable goods and apparel.
Meanwhile, according to the latest JOLTS (Job Openings and Labor Turnover Survey) reported January 4th the number of unfilled job openings in the sector has remained steady at 769,000 – still a historically high number of unfilled jobs.
Container Rates Stabilize
In December the Drewey Composite World Container Index, a benchmark for shipping container prices, found that shipping costs have dropped considerably year-over-year, with prices down 78% over last January, but that prices have stabilized overall, falling just 0.1% week-over-week.
Following significant global supply chain snarls at the beginning of 2022, container prices began to sink precipitously over the latter half of the year, signaling an improvement in container availability and supply chain movement.
Manufacturing Activity Contracted Further in December
Meanwhile, U.S. manufacturing activity contracted further in December, according to the latest survey by the Institute for Supply Management released January 3rd. Activity eased another 0.6% in December to a reading of 48.4%, a two-and-a-half year low. Notably, December’s contraction was not as sharp as November’s 1.2% decline.
Demand and output sank in December, with new orders sinking 2% and the production index falling 3%. Both metrics are in contraction with a reading of 45.2% and 48.5%, respectively.
On the bright side, the ISM’s Employment Index showed more hiring activity, with that index bouncing back into expansion with a reading of 51.4%. Additionally, supplier deliveries improved significantly, with the Supplier Index posting its best reading since March 2009.
Only two of eighteen industries surveyed by the ISM reported growth in December: petroleum products and primary metals.
Related: Selling in a Downturn: Opportunities & Best Practices
Regional Surveys
Empire State Manufacturing Survey Manufacturing activity in the New York region fell sharply in January, according to the latest Empire State Manufacturing Survey, released January 17th. The survey finds the general business conditions index for manufacturers in the region fell another 22 points to a reading of -32.9. This stands as the survey’s lowest reading since mid-2020 and its fifth-worst reading in the Empire State’s survey history.
The report found new orders index plummeted 28 points to a reading of -22.4, while shipments and unfilled orders also fell. Delivery times were unchanged, while its index for number of employees fell to its lowest level in two years.
Notably, the index for future business conditions and the capital spending indices were unchanged, while the technology spending index rose to 17.0.
Richmond Fed Manufacturing Survey The survey demonstrating manufacturing activity in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, reported improved conditions for manufacturers in the region. The survey’s composite manufacturing index climbed from a reading of -9 in November to 1 in December, suggesting more robust manufacturing activity.
Shipments, new orders, and employment –the survey’s three main component indexes--showed improvement.
Notably, however, firms are not as optimistic about business conditions in the next six months, with the expectations index measuring that timeframe falling to -20 in December.
Kansas City February Manufacturing Survey. Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) also held steady in July, hitting a reading of 13 in July from 12 in June, with growth measurably slower than reported in the spring of 2022.
The slower pace of growth was attributable to less activity in in electrical equipment, electronic products, transportation equipment, primary metals manufacturing, and food manufacturing.
Manufacturers in the region were more optimistic this month, with the futures composite index bouncing back to 26 in July, from a reading of 10 in June. More companies were expecting increases in production, shipments, new orders, capital expenditures, and more, according to the survey.
Texas Manufacturing Outlook Survey Meanwhile, Texas manufacturing activity picked up in December, after a slow November. The Texas Manufacturing Outlook Survey found production in the region rose from nine points to 9.7. continued to expand at a slower rate in November, with the production index skirting contraction, falling five points to near zero. Capacity utilization rose accordingly, with that metric rebounding back into expansion in December. Employment improved significantly, with that index climbing 8 points to a reading of 14.
Offsetting the gain in output and employment was a further decline in new orders, which fell another 11 points to -9.3—the 7th straight month of negative readings for this metric.
Meanwhile, the survey’s general business activity index declined in December, posting a reading of -18.8, down from -14.4 in November, while the company outlook index posted its 10th consecutive negative reading, falling to -12.8.
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