Consultant Insight: US manufacturing activity slows

As 2022 ended, U.S. manufacturing activity declined while inventory levels remained high. The 2023 outlook is cautiously optimistic, with demand unlikely to pick up until the second quarter. According to S&P’s latest U .S. Manufacturing PMI report, December’s purchasing manufacturing index (PMI) stood at 46.2, down from 47.7 in November, with the index marking 50 as no change. The month-to-month decline was the steepest fall since 2020 due to subdued demand and a decrease in output. Businesses worked through safety stocks built earlier in the year, according to S&P. Meanwhile, stocks of finished goods increased for the second month as new orders declined. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] “The upside is that weaker demand has taken the pressure off supply chains stretched during the pandemic,” Chris Williamson, chief business economist at S&P Global Market Intelligence. “December saw a second successive month of faster supplier delivery times, a phenomenon which not only signals improving supply conditions but also tends to herald the shifting of pricing power away from the seller towards the buyer.” The Institute of Supply Management’s (ISM) December PMI index also noted a contraction, 48.4 versus 49.0, recorded in November. New orders contracted for a fourth consecutive month, and imports also contracted while new export orders continued to fall for the fifth successive month. Slowing demand High inflation is impacting retail sales . November retail sales, excluding motor vehicles and gasoline, declined 0.2%, after a 0.8% rise in October. As sales begin to slow, retailers are working hard to unload high inventory levels . The latest inventory data from the U.S. Census Bureau shows that non-adjusted inventories were up 20.8%, sales were up 7.4% in October compared with October 2021, and manufacturing inventories were up 7.4%. Sales were up 10.4% for the same period. Retail demand for manufacturing will remain muted through at least the first half of 2023 as inventories are worked down, and consumer demand likely slows further. Post-Lunar New Year: a wild card Higher inventory levels have muted demand for replenishment leading up to the Lunar New Year. However, post-holiday will be a wild card due to how much inventory retailers successfully work down during the holiday season and the lifting of COVID-19 restrictions in China. The easing of restrictions has resulted in the virus spreading rapidly throughout the Chinese population and could potentially delay the reopening of manufacturing in February, which could slow down supply chains from Asian ports to U.S. ports. As a result, there is a possibility that airfreight demand could spike during this period to ensure on-time inventory replenishment. 2023 outlook The National Association of Manufacturers’ Outlook Survey for the fourth quarter of 2022 notes several concerns for 2023, including a challenging economic environment characterized by inflation, supply chain disruption and the workforce crisis. “The majority of manufacturers expect a recession this year. Congress failed to act on essential tax reforms, which complicates investment, increases inflationary pressures and could stifle economic growth,” said Jay Timmons, NAM president and chief executive. However, according to NAM, even in the event of a possible recession, manufacturers plan to do the following: 65.3% plan capital spending on new equipment and technological investments; 64.1% will upskill and train existing workforce; and 55.1% plan to hire new employees.

Consultant Insight: US manufacturing activity slows

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