Posted December 19, 2022

Dec. 19 NAM Economic Report: Supply bottlenecks improving

This week’s Monday Economic Report from Chad Moutray at the National Association of Manufacturers highlighted the S&P Global Flash U.S. Manufacturing PMI fell from 47.7 in November to 46.2 in December, the sharpest decline since May 2020, with steep decreases in new orders, output and exports.

Employment growth stalled in December. Yet, there was stronger (cautious) optimism in the outlook for future production.

In the S&P survey, raw material costs grew in December at the slowest pace since July 2020, and the index for supplier delivery times expanded for only the second time in the past three years, a sign that bottlenecks continue to improve.

Regional surveys from the New York and Philadelphia Federal Reserve Banks had similar results, with contracting activity in December, including for new orders and the average employee workweek. There were rebounds in the forward-looking measures, however, even as the sector continues to remain challenged overall.

After increasing for four straight months, manufacturing production declined 0.6% in November. As such, manufacturers struggled in November amid slowing global growth and ongoing geopolitical and economic uncertainties. On a year-over-year basis, manufacturing production has risen just 1.2%. In addition, manufacturing capacity utilization declined from 79.5% in October to 78.9% in November, the lowest rate since June.

Texas created the most net new manufacturing jobs in November, adding 3,200 workers, and it also had the most manufacturing growth year-over-year, with 47,100 more employees. At 2.2%, Utah had the lowest unemployment rate nationally.

Meanwhile, the Federal Open Market Committee increased the target federal funds rate by 50 basis points last week, as expected, from 4.25% to 4.50%. The Federal Reserve continues to tighten monetary policy as it seeks to tackle inflationary pressures in the U.S. economy. With that said, this move follows four consecutive 75-basis-point increases at its previous meetings, so this represents some slowing in the pace of rate hikes.

Moving forward, the Fed will likely further increase the federal funds rate by 50 or 75 basis points in total at its Jan. 31–Feb. 1 and March 21–22 meetings before hitting the pause button, assuming it is ready to do so at that time (which would hinge on upcoming inflation and employment data).

Read the full Dec 19 report here