Posted January 9, 2023

NAM Outlook Survey: Optimism dropping

In a January 9 Economic Report, NAM Chief Economist Chad Moutray reports 68.9% of respondents to the Q4 2022 NAM Manufacturers’ Outlook Survey felt either somewhat or very positive in their company outlook, down from 75.6% in Q3. It was the weakest reading since the third quarter of 2020, with growth slowing notably across the board. Indeed, it was the first reading below the historical average (75.1%) in two years.

In addition, 62.4% of manufacturing leaders believed that the U.S. economy would slip officially into a recession in 2023, if it has not already. Despite worries about a downturn, manufacturers plan to continue to invest in their companies, which is encouraging.

Attracting and retaining a quality workforce returned to being the number-one primary business challenge in the fourth quarter, cited by 75.7% of respondents. This was followed by supply chain challenges (65.7%), increased raw material costs (60.7%), transportation and logistics costs (50.0%), rising health care and insurance costs (47.9%) and a weaker domestic economy (47.6%), among other challenges.

Manufacturing activity contracted for the second straight month, with the ISM® Manufacturing Purchasing Managers’ Index® dropping from 49.0 in November to 48.4 in December. Production contracted for the first time since May 2020, with new orders and exports deteriorating further to post-pandemic lows. Yet, hiring improved for the month, and the data suggested progress regarding prices and supply chain bottlenecks.

New orders for manufactured goods fell 1.8% in November, or a decline of 0.8% with transportation equipment excluded. New core capital goods orders—a proxy for capital spending in the U.S. economy—edged up 0.1% to a level that was shy of August’s record.

The factory orders data are consistent with a manufacturing sector that has stalled in the second half of 2022 following sizable gains in the prior months amid numerous challenges and an uncertain economic and geopolitical outlook. Yet, activity remains not far from new record levels, albeit in nominal terms.

Private manufacturing construction jumped 6.5% to a record $125.13 billion at the annual rate in November. Private construction in the sector has trended strongly higher since bottoming out at $72.46 billion in February 2021. Over the past 12 months, activity has soared 43.2%.

Meanwhile, manufacturing employment increased by 8,000 in December. Despite some cooling toward the end of the year, the labor market remained a bright spot in the economy. In 2022, the sector hired 379,000 workers, the most of any year since 1994. Currently, the manufacturing sector has 12,934,000 employees, the most since November 2008.

The average hourly earnings of production and nonsupervisory workers in manufacturing rose 0.3% from $25.54 in November to $25.61 in December, up 5.0% from one year ago, continuing to be a highly elevated pace despite some easing from earlier in the year.

There were 779,000 manufacturing job openings in November, averaging nearly 837,000 over the past 12 months and remaining well above pre-pandemic levels.

In the larger economy, nonfarm business job openings cooled to 10,458,000 in November, a pace that remains quite elevated. For every 100 job openings in the U.S. economy, there were just 57.5 unemployed workers. As such, there continued to be more job openings than people actively looking for work.

Finally, the U.S. trade deficit fell to $61.51 billion in November, its lowest level since September 2020, with the reduction in goods imports more than outpacing the decline in goods exports. At the same time, the service-sector trade surplus rose to its highest level since February 2021.