U.S. manufacturing activity contracted for a third month in a row, according to the Institute for Supply Management’s January 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 1% in January to a reading of 47.4%-- the lowest the index has been since May 2020.
The ISM reports demand softened further in January, with the New Orders Index declining another 2.6% to a reading of 42.2%. Output also declined, falling 0.6% to a reading of 48%.
Meanwhile, prices edged up 5.1% to a reading of 44.5%; exports rose 3.2% to a reading of 49.4%; and supplier deliveries rose 0.5% to 45.6%.
Notably in January, manufacturers continued to hire, with the ISM’s Employment Index remaining in expansion with a reading of 50.6%.
Despite the setback in manufacturing activity, Timothy Fiore, Chairman of the ISM, expects demand to make a comeback in the second half of the year, as industrial companies resolve issues surrounding price levels and lead times.
Said Fiore, “New order rates remain depressed due to buyer and supplier disagreements regarding price levels and delivery lead times; these should be resolved by the second quarter. In the meantime, panelists’ companies are attempting to maintain head-count levels during the anticipated slow first half in preparation for a strong performance in the second half of 2023.”
In January, just two of eighteen industries reported growth: transportation equipment and miscellaneous manufacturing. Industries that contracted the sharpest included wood products, textile mills, paper products, and furniture.
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers reflected ongoing issues with supply chain disruptions and easing demand as well as emerging problems with pricing disputes and concerns over a potential recession.
One executive in the transportation equipment sector reported, “Supply chain issues continue to plague our production schedules. Transportation from our overseas suppliers is also contributing to delays. Lead times have doubled for critical electronics, gaskets, sealants, and specialized steel.”
Another in the food processing sector stated, “Sales have dropped (as expected) at the beginning of the year. Forecast from the sales department is showing even lower sales then we expected. If this holds true, inventory levels will rise slightly over next month and a half.”
One panelist in the machinery sector noted, “Strong big ag demand continues to drive heightened demand for parts. Large construction/off highway original equipment manufacturers have strong demand as well. Creating continued capacity constraints with the supply base.”
While another in the miscellaneous manufacturing sector reported, “Customers are being quite aggressive in pursuing price decreases, far beyond the price relief we are actually receiving from our suppliers.”
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