US manufacturing slump deepens amid weak demand & rising costs

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index (PMI) reflected this downturn, posting a 47.9 in December, down from November's 49.4 and below the earlier 'flash' estimate. This decline, representing the sharpest since August, was attributed to the steeper fall in new orders and the first output reduction seen in four months.

Firms reduced their input buying and recruitment, leading to increased spare capacity as indicated by faster backlog depletion and destocking measures. Despite these challenges, business confidence slightly improved, reaching a three-month peak, S&P Global said in a news release.

Inflationary pressures compounded the sector's woes, with cost burdens escalating due to increased supplier prices for metals, plastics, and higher transportation charges. This uptick in input costs, though slower than the historical average, pushed firms to raise selling prices at the fastest rate since April. As a result, employment continued its downward trajectory, with the rate of job reduction marginally exceeding that of the previous month and matching the sharpest decline since June 2020.

Manufacturers responded to the sluggish sales environment and higher costs by adjusting their operations. Production levels were scaled back, and purchasing decisions became more cautious, further slowing production processes. Despite these challenges, there was a silver lining as business optimism among manufacturers ticked higher in December, fuelled by hopes of a pick-up in client demand and increased advertising investments.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Given current order book trends, the overall picture from the survey is one of supply exceeding demand for many goods, which points to downside risks to production, employment, and prices as we head into 2024. Potential supply chain disruptions need to be monitored, however, notably in terms of shipping, as the survey has clearly demonstrated in the past how supply chain tensions quickly feed through to higher prices.”

ALCHEMPro News Desk (KD)