US manufacturing activity contracted for a second month in December, capping the steepest annual slide in the key factory gauge since 2008 and helping to further tame price pressures.

The Institute for Supply Management’s gauge of factory activity fell to 48.4 last month, the lowest level since May 2020 and down from 49 in November, according to data released Wednesday. Readings below 50 indicate contraction. The figure was in line with the median estimate in a Bloomberg survey of economists.

The ISM index dropped 10.4 points in 2022, the biggest annual retreat since the Great Recession. The purchasing managers group’s measure of prices paid for materials fell for a ninth-straight month, the longest stretch of declines since 1974-1975.

Last month, the new orders and production gauges shrank, with each sliding to the weakest levels since May 2020 and signaling a further softening in demand. Measures of exports and imports also contracted.

Thirteen manufacturing industries reported contraction last month, led by wood products, fabricated metals, chemicals and paper. Only the primary metals and petroleum industries expanded.

Taken together, the data highlight how the shift in consumer spending preferences toward services and away from goods paired with rising interest rates and waning global economic activity are weighing on factories.

Shrinking demand paired with easing supply-chain constraints pushed the supplier deliveries gauge to 45.1, the lowest level since March 2009. A reading below 50 indicates faster delivery times.

One silver lining of Wednesday’s report was the continued easing in input costs. The group’s gauge of prices paid for materials fell to 39.4, the lowest since April 2020.

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Select Industry Comments

“Skilled labor shortages are huge, putting a lot of pressure on existing personnel. Electronic components still a major supply chain issue...” - Computer & Electronic Products

“Customer demand continues to be depressed. While 2023 pipeline is looking very positive, current demand is significantly down.” - Chemical Products

“Orders are really slowing down in the original equipment sector. We haven’t seen a major output decrease because we are still eating away at our back orders.” - Transportation Equipment

“Lead times are returning to normal for most of our suppliers, while some of our smaller suppliers are struggling to remain staffed up enough to keep up with orders.” - Food, Beverage & Tobacco

“The continued uncertainty in the economy has resulted in customers delaying their commitments for capital purchases, which is impacting our fourth quarter sales and lowering our forecast for the first quarter of 2023.” - Machinery

“Business is slowing down and forecast to decrease by the end of the first quarter or second quarter.” - Fabricated Metals

“Overall, supply chain conditions have stabilized tremendously since the fourth quarter of 2021. Issues remain, but the list is quite a bit shorter. Customer demand is very strong, and the outlook is positive for 2023.” - Miscellaneous ManufacturingManufacturing headcount also expanded in December, with ISM’s employment gauge rising to a four-month high. The government’s December jobs report will be released Friday and is expected to show payrolls across the economy climbed 200,000.

(Edited by : Sangam Singh)

First Published:Jan 5, 2023 9:54 AM IST