US Manufacturing Has First Contraction Since Pandemic in November, S&P Global PMI Shows

The S&P Global US Manufacturing PMI fell to 47.6 in November of 2022 from 50.4 in October, well below forecasts of 50. This was the lowest growth in factory activity and the first contraction in factory activity since the pandemic hit in mid-2020, hit by supply constraints and rampant inflation. The economy has been hit by stifled demand conditions and production cutbacks. There was a renewed fall in output and a sharper decline in new orders. There was some positive news with firms signaling the first improvement in supplier performance since October 2019.  The surging US dollar added to prices pressures for customers.

US manufacturing Workers
ISM Manufacturing June 2022

At 47.6, down from 50.4 in October, the S&P Global Flash US Manufacturing PMI signalled a renewed decline in operating conditions at manufacturers in November. The deterioration in the health of the sector was solid and the first since June 2020.

Contributing to the decrease in the headline figure was a renewed fall in output and a sharper decline in new orders. Demand conditions were stymied by inflation and economic uncertainty, according to panelists, with new sales falling at the quickest rate since May 2020. Alongside challenging domestic demand conditions, new export orders contracted at a sharper pace.

Nonetheless, there were positive developments in November, as firms signaled the first improvement in
supplier performance since October 2019. Faster lead times were, however, often linked to reduced demand for inputs. Moreover, purchasing activity fell at the sharpest pace since May 2020 as firms reportedly worked through excess inventories

A number above 50.0% is indicative of expansion. 

Highlights

  • Flash US PMI Composite Output Index at 46.3 (October: 48.2). 3-month low.
  • Flash US Services Business Activity Index at 46.1 (October: 47.8). 3-month low.
  • Flash US Manufacturing Output Index at 47.2 (October: 50.7). 30-month low.
  • Flash US Manufacturing PMI at 47.6 (October: 50.4). 30-month low.
  • Faster lead times were often linked to reduced demand for inputs.
  • Moreover, purchasing activity fell at the sharpest pace since May 2020 as firms reportedly worked through excess inventories.
  • Both input and output price inflation eased, and employment slowed as difficulties in finding skilled labor continued.
  • Business confidence improved from October’s recent low.
  • Data were collected 11-22 November
United States Manufacturing PMI

Commenting on the US flash PMI data, Chris Williamson, Chief Business Economist at S&P Global
Market Intelligence said:

“Business conditions across the US worsened in November, according to the preliminary PMI survey
findings, with output and demand falling at increased rates, consistent with the economy contracting at an annualized rate of 1%.

“Companies are reporting increasing headwinds from the rising cost of living, tightening financial conditions – notably higher borrowing costs – and weakened demand across both home and export markets.

“Skill shortages also remain a worrying constraint on expansion, but there is better news on supply chains,
with supplier performance improving in November for the first time for over three years.

“While the reduced supply chain stress is partly a symptom of lower demand, the alleviation of supply
delays removes a key driver of inflationary pressures and has helped moderate the overall rate of input cost inflation to a near two-year low. November even saw increasing numbers of suppliers, factories and service providers offering discounts to help boost flagging sales. Hiring has also slowed to a crawl so far in the fourth quarter as firms focus on reducing costs.

“In this environment, inflationary pressures should continue to cool in the months ahead, potentially
markedly, but the economy meanwhile continues to head deeper into a likely recession.

Source: S&P Global

From The TradersCommunity News Desk