Last updated on April 10th, 2023
For the last several months, numerous reports have tried to answer the same question: “Is manufacturing in a recession?” Just when we think we know the answer, something changes.
In January, the National Association of Manufacturers shared the results of its Outlook Survey for the fourth quarter of 2022. Results showed more than 62% of respondents expected the economy to slip into a recession in 2023. The biggest challenges in priority order were workforce, supply chain, and raw material costs. Even in a recession, over 65% of respondents said they would be investing in technology, new equipment and R&D; training and upskilling; hiring new employees; and facilities.
In February, the Conference Board’s U.S. Leading Economic Index® (LEI) fell by .3%, bringing the LEI down 3.6% between August 2022 and February 2023, which represents a larger decline than what was experienced the prior six months. “While the rate of month-over-month declines in the LEI have moderated in recent months, the leading economic index still points to risk of recession in the US economy,” said the Conference Board’s Business Cycle Indicators Senior Manager Jystyna Zabinski-La Monica.
On March 1, Reuters reported, “U.S. manufacturing contracted for a fourth straight month in February, but there were signs that factory activity was starting to stabilize, with a measure of new orders pulling back from more than a 2 ½-year low.”
On March 24, TradingEconomics.com reported “The S&P Global U.S. Manufacturing PMI increased to 49.1 in March of 2023 from 47.3 in February, beating forecasts of 47, preliminary estimates showed.” So, while that still points to a contraction, it’s smaller than what has occurred the prior five months. The report indicates a rise in production, less of a decrease in new orders, and lower price hikes from suppliers and for raw materials. Also “an unprecedented improvement in supplier delivery times” and a significant reduction in lead times allowed “firms to start replenishing stocks and process backlogs of work, which fell solidly.” While employment rose modestly, inflationary concerns along with demand uncertainties drove confidence to the lowest level in three months.
When it comes to New York, the Federal Reserve Bank of New York reports the March 2023 Empire State Manufacturing Survey showed business continuing to decline, with significant drops in new orders and modest decreases in shipments. For the second month in a row, delivery times were down which may point to improved supply availability and stable inventories. Employment and hours worked were down for the second month in a row and “input and selling price increases slowed somewhat.” There’s little expectation for conditions to improve in the next half-year.
However, according to an article in Money on March 1, “…the worst could be over for manufacturing. So-called hard data on factory production was solid in January, while business spending on equipment appeared to have rebounded at the start of the first quarter.”
Still, the upheaval in banking and latest Fed interest hike didn’t occur until after all of these reports and present a whole new set of concerns and challenges. So, the answer to whether manufacturing is in a recession remains elusive, for now.
As you continue to monitor the landscape and forecast how it may impact your organization, please know RBT CPAs is here to provide business advisory, accounting, tax and audit services and support. When you have a trusted business partner to take care of these responsibilities, you’re freed up to put more attention where it needs to be – on your business. To learn what RBT CPAs can do for you and your business, give us a call.