The manufacturing sector in the United States contracted at the fastest paces since the anti-pandemic lockdowns of 2020, data from a survey of purchasing managers showed Tuesday.
The S&P Global purchasing managers index (PMI) for the manufacturing sector fell to 46.2 in December from the already depressed 47.7 November reading. That is the lowest score for the index since May of 2020 and unchanged from the preliminary reading.
This is the second straight month in which the S&P Global PMI fell below 50, the level that indicates a contraction.
S&P said the downturn was rooted in weak client demand which drove faster contractions in output and new orders. Weak demand is also slowing employment growth, although firms reported a slight increase in payrolls.
“The manufacturing sector posted a weak performance as 2022 was brought to a close, as output and new orders contracted at sharper rates. Demand for goods dwindled as domestic orders and export sales dropped,” Siân Jones, Senior Economist at S&P Global Market Intelligence, said in a statement.
Manufacturers are reacting to reduced demand by shrinking inventories, Jones said.
“Muted demand conditions also led to downward adjustments of stock holdings, as excess inventories built earlier in the year were depleted in lieu of further spending on inputs. With the exception of the initial pandemic period, stocks of purchases fell at the steepest rate since 2009,” Jones said.
On the input side, inflation is easing due to sinking demand. Input price inflation is now below the long-term trend, according Jones. But while inflation eased for factory products, prices are still rising steeply.
“Slower upticks in inflation signal the impact of Fed policy on prices, but growing uncertainty and tumbling demand suggest challenges for manufacturers will roll over into the new year,” Jones said.