The U.S. Manufacturing Conundrum: Growth or Contraction?
Is U.S. manufacturing expanding or contracting? It depends on who you ask.
The most widely watched study U.S. factories saw declines in JuneThe Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index fell to 48.5% in June from 48.7% the previous month.
this is ISM Index falls for third consecutive month This marks the 19th decrease in the past 20 months.
“U.S. manufacturing activity continued to contract as of the end of the second quarter, with demand weakening again, production declining and inputs remaining accommodative,” said Timothy Fiore, chairman of the ISM Manufacturing Business Committee.
ISM Barometer New orders have improved slightly but are still on a downward trend The production index fell to 48.5 from 50.2 in May, dropping back into contractionary territory. The employment index also fell below the 50 threshold. The inventory index also fell.
“Demand remains weak as current monetary policy and other conditions have made companies reluctant to invest in capital and inventory. Production performance has declined compared to previous months, likely causing a decline in revenue and weighing on profitability,” Fiore said.
that That’s pretty bad news for manufacturing. But keep in mind that it’s not that bad: Fiore points out that a composite manufacturing index above 42.5 generally indicates that the overall economy is expanding, meaning we’re still well within the range in which the U.S. economy is expected to expand.
Other studies have shown it’s growing.
But another indicator of U.S. manufacturing is The increase in activity was recorded in May.. S&P Global PMI Five of the first six months of this year have been in positive territory, far better than last year, when only one expansion was detected.
Additionally, the S&P survey revealed the fastest job growth since September 2022.
“New orders rose for the second consecutive month, although customer demand remained weak and business confidence hit a 19-month low,” Standard & Poor’s said in a report on Monday.
of The looming presidential election It appears to be undermine business confidenceAccording to S&P Global.
“Over the past two years, factories have been hit by a post-pandemic shift in demand from goods to services, while at the same time rising prices and concerns about higher interest rates for longer have eroded purchasing power for households and businesses. These headwinds continued into June, increasing uncertainty about the economic outlook as the presidential election approached. As a result, business confidence fell to its lowest level in 19 months, suggesting that manufacturers are bracing for more challenging months ahead,” said Chris Williamson, chief business economist at S&P Global.
President Joe Biden, October 9, 2023. (Official White House Photo by Adam Schultz via Flickr)
Both reports Good news on the inflation reportThe ISM index, which measures the prices manufacturers pay, fell to its lowest level in six months, indicating that prices are still rising but at the slowest pace since the beginning of the year.
S&P’s sales price index rose at its slowest rate so far this year, but input prices continued to rise sharply, though not as much as last month.
So who is right? Unfortunately, Both measures have similar track recordsSo there’s no obvious reason to put more reliance on one or the other. The ISM survey targets larger, more international companies and may be more influenced by export demand, while the S&P Global survey focuses on companies that manufacture for domestic consumption and may provide more information about demand in the US.
Manufacturing and construction remain strong
We can add a third data point to our analysis: In a separate report on Monday, the Commerce Department said: Construction spending on manufacturing facilities increased 1.34% in May.That’s a very significant increase. It’s a 20.3 percent increase compared to a year ago, and a 26.9 percent increase over the first five months of the year compared to the same period last year.
This is because overall construction spending, which includes most private sector business spending and residential construction, Decline in MayThis is probably due to rising interest rates.
Why is manufacturing construction spending growing so rapidly at a time when economic activity is sluggish and confidence is low? The answer is: The government is pouring huge amounts of money into subsidizing state-favored projects. For example, semiconductor manufacturing and manufacturing industries that are considered climate-friendly.
President Joe Biden test drives a Hummer EV during a tour of General Motors’ Factory Zero electric vehicle assembly plant in Detroit on November 17, 2021. (Official White House photo by Adam Schultz via Flickr)
But this raises the question of how much wasteful construction is being carried out, most of which will probably end up being worthwhile. Long-term investment in production capacityBut subsidies can also distort companies’ choices and lead to uneconomic construction simply because the government is footing the bill – this is unlikely to be sustainable in the long term.
