Manufacturing’s Struggles Continue nathan dodds August 2, 2023

Manufacturing’s Struggles Continue

In July, the manufacturing sector marked its ninth consecutive month of contraction, following a 28-month period of growth. It’s a sobering sign of the times we live in, as revealed in the latest Manufacturing ISM® Report On Business®.

As per the report, the Manufacturing PMI® for July stood at 46.4 percent, a marginal 0.4 percentage point increase from June. While it’s an improvement, it remains below the 50 percent threshold, indicating contraction. It’s evident that the industry has yet to regain its momentum after the growth seen in the pre-pandemic period.

The New Orders Index, at 47.3 percent, stayed in contraction territory but showed a slight recovery from the 45.6 percent recorded in June. The Production Index reading followed a similar trend, with a 1.6 percentage point increase from the previous month.

However, not all indicators showed improvement. The Employment Index further slipped into contraction, registering 44.4 percent, down from June’s 48.1 percent. This indicates that manufacturers are responding to falling demand by reducing their workforce.

Interestingly, supplier deliveries, which traditionally slow down as the economy improves, registered a marginal increase of 0.4 percentage points, moving to 46.1 percent. This further reflects the ongoing difficulties within the manufacturing sector. The Inventories Index also increased, although it too remained in the contraction zone.

A significant point to note from the report is the Prices Index which continued to register decreasing numbers, although it increased marginally by 0.8 percentage points from June, indicating an easing of cost pressures since the early days of the pandemic.

But amidst this gloom, there are some bright spots. The Backlog of Orders Index has seen an improvement, albeit it remains at a low level, indicating a slightly positive sign for future production. Plus, there is an apparent appropriate buyer/supplier tension, which may lead to future production stability.

Of all the manufacturing industries, only Petroleum & Coal Products, and Furniture & Related Products saw growth in July. It suggests that certain sectors are better weathering the storm than others.

So what does this all mean for the industry’s future? There are glimmers of hope. Demand seems to be weak but improving compared to June. Some respondents to the ISM® survey even noted that customer growth is projected, although the fundamentals that will sustain this growth are uncertain. And while supplier capacity issues remain an issue for some industries, others have noted that pricing is beginning to decrease and back orders are being resolved.

While the road to recovery might not be straightforward, the recent uptick in several key indicators in July could be the early signs of a slow turnaround. However, it’s clear that the manufacturing sector still has significant obstacles to overcome before it can return to a state of expansion.

In times like these, understanding the industry dynamics and the broader economic context is key. The contraction of the manufacturing sector is a complex issue, with various factors at play, and it’s essential to keep an eye on how these factors evolve. With careful navigation and strategic foresight, there’s reason to hope for a brighter future for the manufacturing industry.

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