Column: US manufacturing likely into recession: Kemp

LONDON, Jan 19 (Reuters) – U.S. manufacturers are likely to have entered a recession in the fourth quarter of 2022, based on a series of high-frequency indicators, as part of a global slowdown in industrial production that is creating a some slack in commodity markets.

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index fell below the 50-point threshold separating expansion from contraction in November and December.

The Federal Reserve’s manufacturing production index fell in November and December and showed output down 0.4% at the end of 2022 compared to 2021.

U.S. manufacturers continued to raise selling prices in the fourth quarter, but the rate of producer price inflation slowed as input cost pressures eased and demand for goods fell .

Producer price inflation for goods other than food and energy slowed to an annualized 4.2% in the three months ending December 2022, from 11.5% in the three months ending in April 2022.

U.S. manufacturers also continued to increase employment, but jobs are a lagging indicator and the rate of growth has slowed as the sector reacts to lower demand for goods.

Manufacturing payrolls rose at an annualized rate of 1.6% in the three months ending December, down from 5.5% annualized growth in the three months ending in April.

Containerized cargo moving through the nine largest ports slowed to 2.49 million twenty-foot equivalent units (TEUs) in November, from 2.81 million in the same month a year earlier and the lowest for the period of the year since 2015.

Container freight moved on major U.S. railroads slowed to 1.07 million TEUs in November from 1.13 million the same month a year earlier and the lowest for the time of year since 2012 .

The most recent weekly data from the Association of American Railroads shows container freight volumes are down 9% in the first two weeks of 2023 compared to the same period in 2022.

Chartbook: US Manufacturing and Freight Activity

Slowing demand for goods and freight is beginning to translate into increased discounts to boost sales and eliminate excess inventory.

In the United States, consumer prices for commodities other than food and energy fell at an annualized rate of 4.8% in the three months to December.

Electric vehicle maker Tesla this month announced price cuts of between 6% and 20% in the United States for its best-selling models (“Tesla puts pressure on rivals with global price cuts”, Reuters, January 13).

In response to lower demand, Federal Express plans to cut Sunday package deliveries in many parts of the country starting in March (“FedEx to further cut Sunday deliveries”, Reuters, January 10).

Overall, manufacturing and freight volumes are falling in response to large price increases, falling real incomes and rising interest rates.

The weakness of the manufacturing industry in the United States and even more in Europe and China explains the fall of a wide range of commodity prices towards the end of 2022.

The slowdown is expected to deepen in the coming months as real incomes continue to erode and interest rates continue to rise.

The manufacturing ISM new orders component has been below the 50-point threshold for six of the last seven months.

The index slipped to just 45.2 in December, in just the eight percentile for every month since 1980, and its lowest level since the first wave of the pandemic in 2020 and before that 2012.

According to the ISM, more than twice as many manufacturers said new orders fell (32%) rather than rose (16%) in December compared to November, implying even weaker activity levels in the future.

Associated columns:

– US manufacturing slowdown will reduce diesel consumption (Reuters, January 5)

– U.S. diesel use slows as manufacturing, freight falter (Reuters, Dec. 1)

– U.S. containerized freight declines (Reuters, November 16)

– Recession by any other name will always reset the economy (Reuters, November 2)

John Kemp is a market analyst at Reuters. Opinions expressed are his own.

Editing by Bernadette Baum

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

John Kemp

Thomson Reuters

John Kemp is a senior market analyst specializing in oil and energy systems. Prior to joining Reuters in 2008, he was a trade analyst at Sempra Commodities, now part of JPMorgan, and an economic analyst at Oxford Analytica. His interests include all aspects of energy technology, history, diplomacy, derivatives markets, risk management, politics and transitions.

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