The S&P Global U.S. Manufacturing Purchasing Managers’ Index (PMI) fell at the fastest rate since May 2020 in December, a continuing sign that the manufacturing sector is on the decline, S&P Global reported Tuesday.
The U.S. Manufacturing PMI posted a 46.2 in December, down from 47.7 in November and solidly below 50, which signals that the sector is contracting, according to S&P Global. Production levels contracted in back-to-back months, with new sales plummeting at the end of December at the fastest pace since 2007, as companies cited weakening demand amid “economic uncertainty” and inflation weighing on customers. (RELATED: Markets Close Cataclysmic 2022 To Post One Of The Worst Years On Record)
“New orders are collapsing and cannot sustain current output levels,” Heritage Foundation economist E.J. Antoni told the Daily Caller News Foundation. “Instead, manufacturers have been expanding employment to work through their backlog of unfilled orders. They were running on fumes and with that gone, the layoffs are around the corner. That means unemployment and recession.”
As I started pointing out 9 months ago, backlog of unfilled orders has been sustaining output while new orders were collapsing; once those unfilled orders are gone, nothing left to sustain output – that means layoffs, unemployment, recession, etc. pic.twitter.com/o0YcxFVr2o
— EJ Antoni (@RealEJAntoni) January 3, 2023
Although input prices declined, and cost savings were generally passed onto consumers in the form of price cuts, inflation remained well above historic trends and cut into demand and economic activity, S&P reported. As demand fell, manufacturers worked through their backlogs at an accelerated pace, causing demand for new employees to decline to the second-lowest level of the past 29 months, although “fractional” levels of hiring were reported due to companies filling extended vacancies at skilled positions.
“The manufacturing sector posted a weak performance as 2022 was brought to a close, as output and new orders contracted at sharper rates,” Siân Jones, senior economist at S&P Global Market Intelligence, said in the company’s press release. “Concerns regarding the outlook for demand weighed on hiring decisions. Job creation was only slight, and largely linked to skilled hires, as firms displayed caution.”
The broader labor market remains incredibly tight, with hiring far surpassing investor expectations in November, according to the Bureau of Labor Statistics (BLS). However, even as the market remained tight, the BLS estimated that manufacturers added just 14,000 jobs in November, while private payroll firm ADP estimated that manufacturers actually lost 100,000 employees in November.
“While unemployment is a lagging indicator, manufacturing often lags less than the labor market as a whole,” said Antoni. “For manufacturing to bounce back, we need to see DC scale back the taxing, spending, and—perhaps most importantly—the regulating.”
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