Second Month of Decline in Manufacturing

By at 4 January, 2023, 11:20 pm

by Raymond J. Keating –

According to the latest read of purchasing managers from the Institute for Supply Management, the manufacturing sector of the U.S. economy in December declined for the second month in a row.

Timothy R. Fiore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee, stated:

“The December Manufacturing PMI registered 48.4 percent, 0.6 percentage point lower than the 49 percent recorded in November. Regarding the overall economy, this figure indicates contraction after 30 straight months of expansion. The Manufacturing PMI® figure is the lowest since May 2020, when it registered 43.5 percent.”

Readings above 50 percent indicate growth, while below 50 percent point to decline. As noted in the following chart from ISM, the decline in purchasing managers’ takes on manufacturing declined throughout most of 2022.

Source: Institute for Supply Management

As for subsets of the report, Fiore noted:

“The New Orders Index remained in contraction territory at 45.2 percent, 2 percentage points lower than the 47.2 percent recorded in November. The Production Index reading of 48.5 percent is a 3-percentage point decrease compared to November’s figure of 51.5 percent.”

Out of the 15 manufacturing industries examined, only two – Primary Metals, and Petroleum & Coal Products – experienced growth, while the other 13 contracted in December.

Here’s another point from this report that warrants consideration:

“A Manufacturing PMI above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the December Manufacturing PMI indicates the overall economy contracted in December…”

According to Fiore, “The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI for December (48.4 percent) corresponds to a 0.1-percent decrease in real gross domestic product (GDP) on an annualized basis.”

So, this report on manufacturing clearly adds to worries regarding recession, and in turn, increasing concerns about policymaking by the White House, Congress and the Fed working against growth (see SBE Council’s analysis), that is, in favor of recession.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.



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