Manufacturing Woes Continue

By SBE Council at 1 June, 2023, 4:27 pm

by Raymond J. Keating –

The latest read on the Institute for Supply Management’s Manufacturing PMI pointed to the seventh straight month of contraction for the manufacturing sector of our economy. Of course, it must be noted that most manufacturers are small businesses, for example, with 93.1 percent of employer firms in manufacturing having fewer than 100 employees, according to the latest Census Bureau data.

The May Manufacturing PMI came in at 46.9 percent, which was 0.2 percentage points lower than the 47.1 percent recorded in April. (See the following chart for a 12-month look, courtesy of the Institute for Supply Management.)

According to Timothy R. Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee, asserted, “Regarding the overall economy, this figure indicates a sixth month of contraction after a 30-month period of expansion.” Therefore, the institute effectively is saying that the U.S. economy already is in a recession.

Only one of the six largest manufacturing industries – transportation equipment – grew in May, and overall, four industries expanded in May while 14 contracted.

It also should be noted that while new orders were deep in contraction territory, production actually moved from contraction to expansion territory in May (from 48.9 percent in April to 51.1 percent in May). If one sought a glimmer of hope in this report, that production number would be it.

This troubling ISM manufacturing PMI report came on the heels of an underwhelming Beige Book assessment of the economy from the Fed.

What’s needed?

Quite frankly, the U.S. desperately needs a drastic change in public policy, including advancing tax relief, regulatory modernization and movement away from President Biden’s massive regulatory push, leadership on trade with new agreements, a welcoming immigration policy, limited government spending and sound money.

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.