After falling into contraction territory during November for the first time in two and half years, the Institute for Supply Management’s monthly Purchasing Managers Index (PMI) — a well-regarded barometer of the U.S. industrial economy — contracted further in December to its lowest mark since the height of the COVID-19 pandemic.
The December PMI mark of 48.4% was 0.6 percentage points lower than November and the lowest reading since May 2020’s 43.5%. November’s reading snapped 29 straight months of expansion (anything above 50.0 or above).
December was the index’s eighth consecutive month-to-month decline.
After carrying strong momentum to the end of 2021 and holding in the high 50s the first couple months of 2022, the PMI has steadily decreased since. It slid to 53.0 in June and 50.9 in September and only fallen further. A year earlier, December 2021’s PMI registered at 58.8.
“With Business Survey Committee panelists reporting softening new order rates over the previous seven months, the December composite index reading reflects companies’ slowing their output,” commented Timothy Fiore, CPSM, C.P.M. and chair of the ISM Manufacturing Business Survey Committee.
|Month||Manufacturing PMI||Month||Manufacturing PMI|
|Dec 2022||48.4||June 2022||53.0|
|Nov 2022||49.0||May 2022||56.1|
|Oct 2022||50.2||April 2022||55.4|
|Sept 2022||50.9||March 2022||57.1|
|Aug 2022||52.8||Feb 2022||58.6|
|July 2022||52.8||Jan 2021||57.6|
|Average for 2022’s 12 months – 53.5; High – 58.6; Low – 48.4|
ISM noted that, of the six biggest manufacturing industries, only one — petroleum & coal products — registered moderate expansion in December. Of the 18 industries ISM tracks, only one other — primary metals — registered expansion.
Of the 18 manufacturing industries ISM tracks new orders of, only three reported growth during December: textile mills, primary metals and transportation equipment. Eleven industries reported a decline in new orders.
“Price and lead time declines as well as backlog contraction should encourage buyers to reenter the market and sales agents to be more aggressive in seeking new business, but clearly this did not occur in December,” Fiore said. “Slowing in new order rates to adjust for overordering in 2021 and the first quarter of 2022 has been underway since March of this year.”
On the production side, four industries reported growth during December: primary metals; electrical equipment, appliances & components; and machinery. Eight industries reported a decrease, and six reported no change.
For employment, five of the 18 tracked industries reported growth: petroleum & coal products; furniture & related products; plastics & rubber products; machinery; and miscellaneous manufacturing. Six industries reported an employment decrease, and seven reported no change.
MANUFACTURING AT A GLANCE
|Index||Series Index Dec||Series Index Nov||Percentage Point Change||Direction||Rate of Change||Trend* (Months)|
|Customers’ Inventories||48.2||48.7||-0.5||Too Low||Faster||75|
|Backlog of Orders||41.4||40.0||+1.4||Contracting||Slower||3|
|New Export Orders||46.2||48.4||-2.2||Contracting||Faster||5|
|OVERALL ECONOMY||Contracting||From Growing||1|
“Panelists’ companies continue to judiciously manage hiring,” Fiore noted. “The month-over-month performance of supplier deliveries was the best since March 2009. Average lead time remained 32 percent above previous trough for capital expenditures and 37 percent for purchased materials; both are too high. Managing head counts and total supply chain inventories remain primary goals as the sector closes the year. More attention will be paid to demand as we enter the first quarter to shore up order books for the next six to 12 months.”
ISM’s December Report on Business included a selection of commentary across the 18 industries it tracks:
- “Skilled labor shortages are huge, putting a lot of pressure on existing personnel. Electronic components still a major supply chain issue, particularly if the component you need is not the current hot technology.” [Computer & Electronic Products]
- “Customer demand continues to be depressed. While 2023 pipeline is looking very positive, current demand is significantly down.” [Chemical Products]
- “Orders are really slowing down in the original equipment sector. We haven’t seen a major output decrease because we are still eating away at our back orders.” [Transportation Equipment]
- “Lead times are returning to normal for most of our suppliers, while some of our smaller suppliers are struggling to remain staffed up enough to keep up with orders.” [Food, Beverage & Tobacco Products]
- “The continued uncertainty in the economy has resulted in customers delaying their commitments for capital purchases, which is impacting our fourth quarter sales and lowering our forecast for the first quarter of 2023.” [Machinery]
- “Business is slowing down and forecast to decrease by the end of the first quarter or second quarter.” [Fabricated Metal Products]
- “Trying hard to keep the wheels moving to close out the year strong. The manufacturing plants are nearing their annual outage periods, and some TLC is needed to keep things running.” [Nonmetallic Mineral Products]
- “Finished the year strong, and we are pleased with how the year shaped up.” [Primary Metals]
- “New China technology trade restrictions have impacted our business and plans going forward.” [Electrical Equipment, Appliances & Components]
- “Overall, supply chain conditions have stabilized tremendously since the fourth quarter of 2021. Issues remain, but the list is quite a bit shorter. Customer demand is very strong, and the outlook is positive for 2023. There is large focus on margin recovery after this period of high inflation.” [Miscellaneous Manufacturing]