The U.S. manufacturing industry fell further into contraction at the end of 2022, according to two national purchasing manager indices.
“The manufacturing sector posted a weak performance as 2022 was brought to a close, as output and new orders contracted at sharper rates," Siân Jones, Senior Economist at S&P Global Market Intelligence, said in a statement. "Demand for goods dwindled as domestic orders and export sales dropped."
S&P said its PMI, which measures the overall health of the sector, fell from 47.7 in November to 46.2 in December. An index score below 50 indicates contraction.
The Institute for Supply Management saw a similar drop in its PMI index, coming in at 48.4%. The reading was down .6 percentage points from November and the second consecutive month below 50%.
ISM cited a lack of demand as a leading factor driving down the index.
New orders fell to 45.2%, down two percentage points from the previous month, as soft demand made its way into production planning and execution and firms continued to deal with elevated lead times, Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, said on a media call Wednesday.
"I think the key now is they're waiting for demand to come back," Fiore said. "The biggest surprise this month is really the production weakening. I think that was kind of just a big sigh of relief by manufacturers to get ready for January and February output."
The slowdown hurt employment, as companies scaled back hiring amid falling capacity and work backlogs. Fiore noted that employers continue to rely on hiring freezes, layoffs and attrition to lower their headcounts.
Only two industries reported growth in December, according to ISM — primary metals and petroleum and coal products.
Despite the slow end to the year, Fiore said he remains optimistic about the 2023 outlook, particularly in the second half of the year when he expects prices to fall further and demand to rebound.
"Our forecasts indicated that 2023 is going to be very similar to 2022," he said on the call. "That the first half of 2023 is going to be sluggish, it's going to be not as good as the second half of 2022, but the second half of 2023 is going to be pretty strong.”