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The health and performance of the US manufacturing sector play a crucial role in the overall stability and growth of the country’s economy. Recent reports indicate that the US manufacturing sector is experiencing a marked slowdown. Many are asking, is the US experiencing a manufacturing recession?

Manufacturing Recession

Below, we will examine the evidence supporting such claims, explore indicators used to determine a recession, and assess the effectiveness of political measures implemented to rejuvenate the sector.

Assessing a Potential Recession

Whether or not we are technically in a manufacturing recession, strictly defined, there is no doubt about the current slowdown. According to a report by the Institute for Supply Management (ISM) in March 2023, the US manufacturing sector experienced its weakest performance in nearly three years

The ISM’s Manufacturing Purchasing Managers’ Index (PMI) dropped to a concerning level, indicating a contraction in the industry. What is driving this contraction? There are several contributing factors, including supply chain disruptions, labor shortages, rising input costs, and waning demand.

In additional reports, the manufacturing sector’s slump is further reinforced. PMI has continued to decline, reflecting a sustained contraction. These findings suggest that the industry has been grappling with significant challenges and facing a possible recession.

Other indicators are more decisive, indicating a true manufacturing recession by any definition:

  • In February, the ISM purchasing managers’ index slipped to 47.4 (16th percentile for all months since 1980), down from 57.6 (85th percentile) the year prior.
  • In 12 of the last 15 months, the composite index has fallen to its lowest since the 2020 crisis.
  • The index has been sitting at below 50 points (considered the dividing line between contraction and growth) since last year.
  • New orders are down to 42.5 (6th percentile) from 57.9 (62nd percentile) a year ago.
  • New business being reported was clearly down.
  • While labor demand remains relatively unchanged, more manufacturers reported cutting jobs (17%) than adding them (15%).

Are Political Measures Having an Impact?

In response to the downturn in the manufacturing sector, US policymakers have implemented various measures aimed at revitalizing the industry. For example, the Biden administration touted the benefits of the CHIPS Act, aimed at shoring up the supply of microchips so essential in automotive manufacturing. The legislation is intended to help reverse the global chips shortage, but the full results will take years to realize. 

Another notable initiative is the introduction of manufacturing stimulus programs. The intention behind these programs is to generate steady growth by providing financial incentives, tax breaks, and investment opportunities for manufacturers.

Early reports suggest that the manufacturing stimulus has had a positive impact on the sector. It highlights the potential benefits of such measures, including increased investment, job creation, and improved competitiveness. However, it is important to consider the timeline for the effectiveness of these policies and whether their impact has been substantial enough to counteract the ongoing challenges.

Economic recovery takes time, and the success of such measures should be evaluated over the long term. It is also crucial to consider the comprehensive nature of the challenges faced by the industry, which extend beyond mere financial incentives.

Challenges Facing US Manufacturing 

While the US does seem to be experiencing a manufacturing recession, a downturn at this time is to be expected and may not indicate a long-term trend. Manufacturing across the world has experienced historic challenges. Supply chain disruptions have been a significant factor contributing to the manufacturing sector’s slump. The COVID crisis exposed vulnerabilities in global supply chains, highlighting the need for manufacturing resilience and diversification

Addressing these issues will require a holistic approach that includes strengthening domestic supply chains, investing in advanced technologies, and promoting innovation. And all of these steps will have to take into account historically aggressive interest rate hikes from the Fed.

Furthermore, the industry continues to face labor shortages, making it challenging for manufacturers to meet production demands. Addressing this issue necessitates a focus on workforce development, skills training, and attracting talent to the manufacturing sector. Political measures that prioritize these aspects can potentially alleviate the labor shortage and enhance productivity.

Weathering a Manufacturing Recession

The evidence from multiple reports indicates that the US manufacturing sector is indeed experiencing a recession, as reflected in the decline of key indicators such as the PMI. While political measures have been implemented to counteract the slump, their effectiveness remains a subject of ongoing evaluation. It is up to individual manufactures to take measures to mitigate risk and any long-term effects of weathering this economic storm.

All is not doom and gloom. In fact, by taking the necessary precautions, US manufacturers can actually thrive in a recession.  By focusing on diversification and experimentation, manufacturers can anticipate curves in demand and strengthen some products while others falter. Additionally, cost-cutting measures make it easier to withstand an economic storm, streamlining operations and improving cashflow. And rather than pull back, manufacturers that thrive in a recession invest in additional technology and innovation to stay ahead of the curve. 

It’s easier than you think.

Get in touch and we’ll show you how.