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Following twenty-nine consecutive months of growth, U.S. manufacturing activity fell into contraction for the first time since the pandemic, according to the Institute for Supply Management’s November survey of supply chain executives.
The ISM reports its index of manufacturing activity fell 1.2% to a reading of 49%, the lowest it has been since May of 2020 and crossing the dividing line that separates expansion from contraction.
A reading of 50 or above signals expansion.
Demand continued to ease in November, with the ISM’s New Orders Index falling another 2% in November to a contractionary reading of 47.2%. Output remained strong in November, but slightly less slow compared to October, falling 0.8% to a reading of 51.5%.
Manufacturing employment contracted in November, edging back 1.6% to a reading of 48.4%. The ISM noted that panelists are reporting some layoffs, while other are managing headcount through hiring freezes and employee attrition.
Supplier deliveries continue to improve, with that reading holding steady at 46.8%, its best reading since February 2012.
Notably, prices fell another 3.6% to a reading of 43%, signaling an end to the historic price pressure manufacturers have been facing. Both imports and exports contracted in November.
Timothy Fiore, the Chairman of the ISM noted that although the U.S. manufacturing sector has fallen into contraction, inputs, which include supplier deliveries, inventories, prices and imports—mostly accommodated future demand growth. “Order backlogs, prices, and now lead times are declining rapidly, which should bring buyers and sellers back to the table to refill order books based on 2023 business plans,” Fiore said.
In November, six of eighteen industries reported growth: apparel, leather and allied products; nonmetallic mineral products; primary metals; miscellaneous manufacturing; petroleum and coal products; and transportation equipment.
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers revealed growing concerns over a slowing economy, weaker demand and lingering supply chain issues tempered by favorable growth in some sectors.
One executive in the computer & electronic products industry reported, “Customer demand is softening, yet suppliers are maintaining high prices and record profits. Pushing for cost reductions based on market evidence has been surprisingly successful.”
Another in the nonmetallic mineral products sector stated, “There is caution going into 2023, but the commercial section of construction seems to still be going strong.”
One panelist in the transportation equipment sector stated, “Orders for transportation equipment remain strong. Supply chain issues persist, with minimal direct effect on output.”
While another in the machinery sector reported, “General economic uncertainty has created a slowdown in orders as we approach the end of the year, and many of our key customers are reducing their capital expenditures spend.”
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