U.S. manufacturing activity finished 2023 on a sour note as factory conditions deteriorated because of employment losses and renewed inflationary pressures, according to S&P Global Market Intelligence.
In December 2023, the S&P Global Manufacturing Purchasing Managers’ Index (PMI) was adjusted lower to 47.9, from the initial estimate of 48.2 and the 49.4 reading in November 2023; anything below 50 indicates a contraction in activity.
During the past year, the manufacturing industry was stuck in recession territory for 10 months.
In December 2023, domestic output slumped at the fastest pace in six months. Several negative developments, including a reduction in payrolls for the third consecutive month, upward inflationary pressures, and a decline in new orders, fueled the slide. However, business confidence rose to its highest level in three months.
That could suggest that the manufacturing sector “acted as a drag on the economy in the fourth quarter,” according to Chris Williamson, the chief business economist at S&P Global.
“If the early pandemic lockdown months of 2020 are ignored, the recent job shedding is the most severe recorded by the survey since the global financial crisis of 2009,” he wrote in the PMI report. “While some factories still report hard-to-fill vacancies, in the majority of cases the decline in employment in December reflected pressure to cut costs and capacity in the wake of weak demand.”
The latest S&P Global data come as the Institute for Supply Management (ISM) published its final manufacturing reading of 2023.
Last month, ISM’s Manufacturing PMI rose to 47.4 from 46.7 in November 2023 and slightly higher than the consensus estimate of 47.1. Still, it represented the 14th straight monthly contraction in factory activity.
While output rebounded from November 2023 to December 2023, new orders and employment tumbled. Price pressures were diminished amid a drop in energy prices.
“The U.S. manufacturing sector continued to contract, but at a slightly slower rate in December as compared to November. Companies are still managing outputs appropriately as order softness continues,” Timothy R. Fiore, chair of the ISM’s Manufacturing Business Survey Committee, wrote in the report. “None of the six biggest manufacturing industries registered growth in December.”
Global Activity in the ‘Doldrums’
Global manufacturing activity was entrenched in the “doldrums” to close out 2023, according to data from S&P Global.The headline PMI clocked in at 49, down from 49.3 in the previous month, signaling “a further modest deterioration in the business situation.”
The worldwide manufacturing sector has suffered job losses, slowing international trade, and higher shipping costs. Price pressures have shifted into disinflationary mode over the past year, and there are growing concerns surrounding supply-chain disruptions in 2024.
Shipping in the Red Sea has been disrupted by the Israel–Hamas war, and the Iran-backed, Yemen-based Houthi militant group attacking global container vessels in the Suez Canal could contribute to “any further deterioration in supply chains,” and this could be a heightened “concern in relation to inflation,” according to Mr. Williamson.
“These shipping concerns are in fact already feeding through to some upward price pressures,” he said.
“Comments tracked in PMI survey responses reveal that the number of companies worldwide reporting that they have raised their selling prices due to increased shipping costs is running at over three times the long-run average. Although far from the peak price pressures from shipping seen during the pandemic, this represents the highest upward trend since 2008.”
China in Focus
China’s manufacturing sector has been mixed based on what metrics observers use.The official National Bureau of Statistics’ Manufacturing PMI in China tumbled to 49 in December 2023, falling short of economists’ expectations of 49.5. It was the third consecutive monthly contraction in factory activity and the eighth instance in 2023.
However, the private sector reading improved for the second consecutive month to finish the year. The Caixin Manufacturing PMI climbed to the highest level since August 2023 and has been in expansion territory for most of 2023.
It was a rough year for the Chinese economy, especially on the trade front. In the first 11 months of 2023, exports tumbled by 5.2 percent year-over-year. Exports edged up by 0.5 percent in November 2023 but declined for most of the year.
China’s industrial production had its best month of 2023 in November, suggesting that stimulus efforts by the government could resuscitate a sluggish economic landscape, according to Robert Carnell, the regional head of research at ING.
“Industrial output growth is very slowly picking up, though the data needs to be read with care,” he wrote in an analyst note. “Our cautious conclusion from all of this is that China’s recovery is ongoing. But it still looks narrowly based and vulnerable to any further worsening in the real estate sector.”
As the world’s second-largest economy, China is expected to have a solid start to 2024 and then end the year weaker, according to economists at Capital Economics.
“China’s economy has regained some strength recently. We expect this to continue into 2024, on the back of support from fiscal policy and a further pick-up in household spending,” they wrote. “But with property construction likely to continue to decline and exports set to do the same, the recovery will lack momentum.”
Economic growth is expected to slide below 4 percent by year’s end.
