EconoFACTS

December 01, 2022 | 10:40

U.S. Manufacturing .... Going Its Own Way

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

It has finally happened. The U.S manufacturing ISM is now below 50. Everyone saw this coming... what with the global economic slowdown (the IMF head just said that there is a higher chance of global growth being below 2% next year), really high inflation, and a Federal Reserve that has been "pretty aggressive" (to quote the Fed Chair).

The headline slipped for the third straight month, with the latest move landing it at a below-expected 49.0, the first sub-50 reading since the pandemic era and, before that, 2019. New orders were down (two straight below 50), production was down for the first time in three months, employment was down again, more than erasing the prior month's pickup, and supplier deliveries were a little more delayed for the first time since the spring. But here's some good news (and good here means good): prices paid fell for the eighth straight month to the lowest level in nearly three years.

Of 18 industries in the survey, only six reported growth, the fewest since 2020. And the slowdown in activity was pretty evident in the comments..... "demand is softening... volumes on a downward trend.... overall, things are worsening....". There were a few positives..... those in the computer & electronic products industry were "pushing for cost reductions" and got them. Orders in the transportation equipment industry "remain strong". And for those in the food & beverages arena, although consumer goods are "slowing down.... the US economy seems decent".

There were some interesting takeaways from the employment section, with "a number of panelists' companies reducing employment levels through hiring freezes, attrition, and now layoffs...... layoffs were mentioned in 14% of employment comments, up from 6% in October." Remember how Fed Chair Powell said that "moderation in labor demand growth will be required" during his speech yesterday to the Brookings Institution? Well, it's happening.

Separately, U.S. construction spending fell 0.3% in October, not far from expectations with all the pullback spread between residential and non-residential projects, and all from the private sector. Take this report with a grain of salt given the big revisions that often accompany this release.

Bottom Line: The U.S. economy is slowing... no debate there. But considering that it has gone through 375 bps of tightening, and a further 50 bps to come in two weeks, it is a wonder that it hasn't slowed even more.

Table 1 - United States — ISM Manufacturing PMI

(percent reporting)

Source: BMO Economics, Haver Analytics