Manufacturing Indexes Continue Downward Trend as Consumers Leery of Big-Ticket Purchases
Coming out of the pandemic related disruption, the larger story of U.S. manufacturing has been an odd blend of good data and bad data depending on the sector. While some manufacturing was growing as a result of clearing supply chains, other sectors of manufacturing remained soft.
In total, the full supply chain rebound should have completed around the end of the third quarter, beginning of the fourth quarter of 2022.
However, simultaneous with the correction within the supply chain(s), consumer purchase activity began contracting.
The consumer pullback led to very weak holiday sales last year, and a combination of increased inventories of finished goods.
Keep in mind that Maersk overseas shipping noted significant drops in orders for the movement of material in the third quarter of last year. Considering the lag, the previously noted inventory buildup in combination with the drops in unit sales of durable goods, would generally mean lower manufacturing purchase order activity Q4 (’22) and Q1 (’23). This reality is reflected in the actual data as reported by The Wall Street Journal:
(Via WSJ) – […] New orders for manufactured goods contracted for the sixth straight month through February, according to surveys by the Institute for Supply Management. Manufacturing output is down 1.7% from its postpandemic peak in May 2022, according to a three-month moving average of Federal Reserve data. And the Commerce Department’s measure of civilian capital equipment orders, excluding aircraft—the building blocks of business—was down 3.4% in January from its recent high in November 2021, after adjusting for inflation.
[…] Production of appliances, furniture and carpeting was down almost 15% in January from the previous year, according to the Fed. That coincides with sales of previously owned homes falling for 12 straight months. Consumers often buy furnishings after they move.
Production of steel, iron and other primary metals was down 3.6% and machinery production fell by 1.8%. Output of plastics, food, beverage and tobacco products, and computers and electronics, also fell during that period.
[…] Business inventories swelled in the fourth quarter of last year, when consumer spending cooled. The ratio of inventories to sales for durable goods was higher in November and December than at any point since 2009, with the exception of April and May 2020, when pandemic-related lockdowns froze commerce.
Pat Weiler, chief executive of paving-equipment maker Weiler, said inventory levels are up more than 50% over the last two years. (read more)
Unfortunately, the U.S. doesn’t really manufacture much any longer. Manufacturing only accounts for around 11% of GDP. However, if purchase orders for inbound component goods are down for six straight months, we can generally infer the absence of downstream consumer demand.
I fully expected a recession statistic in the fourth quarter last year and was quite surprised we didn’t see one. The scale in the drop of imports was statistically the majority reason for the outcome. Imports are a deduction to GDP. However, that said, there is nothing visible in the consumer purchasing side to indicate why durable good manufacturing is even as strong as it is.
We are in a very weird economic environment that is not helped by the financial punditry pretending that things are going swimmingly.
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