Manufacturing Sector Struggles as Economy Expands Towards Year-End

Summary

  • As 2022 drew to a close, the economy expanded despite variable outcomes in the manufacturing sector.
  • Increased business activity driven by soaring orders and demand for employees within the services sector has been reported in a December survey.
  • Manufacturing’s role in fueling economic growth is impeded by high interest rates, despite potential rate cuts on the horizon.
  • Manufacturing activity dipped further in the New York region, according to a survey by the New York Fed’s Empire State.
  • Reports from S&P Global revealed that its flash manufacturing PMI decreased to 48.2 in December, though the services sector exhibited a rise.
  • Output from computer and electronic manufacturers, motor vehicle suppliers, aerospace, and miscellaneous transportation equipment providers distinctively climbed.

Economic Growth Amid Industrial Wobbles

While experiencing diverse results, the manufacturing sector persisted to watch the economy expand by year-end. A survey exhibited an upswing in business activity in December, caused by rising orders and an increased demand for labor in the services industry.

Chief economist at FWDBONDS, Christopher Rupkey noted, “Industrial production hit its peak in September 2022, yet the broader economy continuously grows. Manufacturing, however, merely limps along with little likelihood of driving near-term economic growth.”

Manufacturing Sector Challenges

Manufacturing output, excluding motor vehicles and parts, slipped by 0.2%. Factories’ overall production reduced by 0.8% annually in November. Despite significant interest rates, the manufacturing industry, accountable for 10.2% of the economy, isn’t expected to drastically improve factory output.

The longest contraction period since August 2000-January 2002 saw the ISM’s manufacturing PMI remain in contraction territory for 13 consecutive months. The Fed confirmed on Wednesday that the tightening of monetary policy is winding down.

New York Manufacturing Slump

The New York Fed’s Empire State survey reflects the manufacturing slump, demonstrating the area’s factory activity further receding into recession. The survey’s general business conditions index fell 24 points to -14.5 this month. Manufacturers showed little optimism for improving conditions in the upcoming half-year.

Business Activity Rises

Another S&P Global report reflected December’s flash manufacturing PMI dropping to 48.2 due to decreasing orders from November’s 49.4.

Manufacturing Strength

Last month, recovered by 7.1%, the output of motor vehicles and parts compensated most of October’s 9.9% decrease. The simultaneous increases in the production of computer and electronic products, aerospace, and miscellaneous transportation equipment also boosted durable manufacturing by 1.2%.

Overall industrial production for November stepped up 0.2% after dropping 0.9% in October. Capacity utilization for the industrial sector edged upmen-tenth of a percentage point to 78.8% in November.

Summing up, analyst Rubeela Farooqi intimated, “Stabilization in lowered-level demand, easing interest rates as the Fed cuts rates next year, as well as onshoring of supply networks and infrastructure spending may boost factory activity in 2024.”

This economic outlook has a direct impact on forex trading and affects assets like currencies. Specifically, the manufacturing slump could lead to a potential decrease in the strength of the dollar, directly influencing FX trading decisions.

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