Last month, the U.S. manufacturing economy shrank for the first time since the summer of 2020, according to the latest survey from the Institute for Supply Management. The ISM’s Purchasing Manager’s Index fell to 49.0% in November 2022, 1.2 points lower than in October and 5.5 points better than it was in May 2020.
The period between last month and May 2020 was marked by strong demand for manufactured products that, despite the substantial hurdle of sourcing supplies and talent to make them, managed to drive manufacturing growth for about 30 months straight.
That demand is slowly petering out. The ISM’s index for new orders fell from 49.2 to 47.2%, indicating faster growth. Timothy Fiore, chair of the ISM’s manufacturing business survey committee, noted that several survey indicators of demand had fallen.
“The November composite index reading reflects companies’ preparing for future lower output,” he said in the report, noting that the new orders and new export orders have both fallen for three and four months, respectively.
Other key indicators for manufacturing growth were mixed but mostly negative. The employment index fell from unchanged in October at 50% to 48.4%, indicating more trouble for businesses hiring employees. The production index, however, fell slightly but remained in growth territory, dropping 0.8 points to 52.3%.
In comments on the survey, manufacturing executives echoed the survey’s findings as they related to their own businesses.
“Customer demand is softening, yet suppliers are maintaining high prices and record profits,” reported an executive in the computers and electronics industry. A leader in the electrical equipment and appliances sector noted that lower housing starts were hurting demand. “We’re sitting on cash that is tied up in inventory,” they said. And a machinery executive said slackening demand seemed tied to economic concerns.
“General economic uncertainty has created a slowdown in orders as we approach the end of the year, and many of our key customers are reducing their capital expenditures spend,” they said.