SIJ - U.S. Manufacturing Downturn Accompanied By Slumping Price Pressures
2023-07-04 01:30:00 ET
Summary
- The health of the US manufacturing sector took a sharp turn for the worse in June, adding to concerns over the economy potentially slipping into recession in the second half of the year.
- Factory output declined sharply at the end of the second quarter, according to the S&P Global PMI, dropping at one of the fastest rates seen over the past 13 years.
- Leading the darkening picture was a severe drop in demand for goods, with new orders slumping at a rate which was among the steepest since the global financial crisis in 2009.
The health of the US manufacturing sector took a sharp turn for the worse in June, adding to concerns over the economy potentially slipping into recession in the second half of the year.
Factory output declined sharply at the end of the second quarter, according to the S&P Global PMI, dropping at one of the fastest rates seen over the past 13 years.
Leading the darkening picture was a severe drop in demand for goods, with new orders slumping at a rate which was among the steepest since the global financial crisis in 2009.
Whereas prior months had seen unprecedented supply chain improvements help companies boost production to fulfill accumulated backlogs of orders, June's ongoing decline in new order inflows mean firms are now coming under increasing pressure to reduce production volumes. Backlogs of work are now falling sharply.
Companies report that customers have become increasingly reticent to spend amid the rising cost of living, higher interest rates, growing concerns about the economic outlook and a switch in spending to services.
Exacerbating the downturn has been a continued focus on inventory reduction as manufacturers, their suppliers and their customers all seek to cut warehouse stocks in the face of weakening demand.
In this environment, pricing power is fading rapidly. Prices charged for inputs by suppliers are now falling at the joint-quickest rate since 2009 barring only the early pandemic lockdown months.
Prices charged for goods leaving the factory gate meanwhile barely rose in June amid increasing reports of discounting, indicating a near-total collapse of inflationary pressures in the goods-producing sector.
The focus now turns to the service sector, where inflationary pressures have been more stubborn in recent months amid resurgent post-pandemic demand. The big question is how long this service sector spending can be sustained in the face of headwinds from the cost of living and higher interest rates.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editor
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U.S. Manufacturing Downturn Accompanied By Slumping Price Pressures