Employees works on an assembly line at startup Rivian Automotive's electric vehicle factory in Normal, Ill., on April 11, 2022. (Kamil Krzaczynski/Reuters)
President Joe Biden has made manufacturing a centerpiece of his administration’s initiative to build a green energy economy, touting investments that the White House has put forward to resuscitate towns that were “shadows of what they used to be.”
Supporters say that the president’s efforts to revive the manufacturing sector appear to be working as taxpayer-funded investments in new domestic manufacturing projects have accelerated. Since the passage of the Inflation Reduction Act and the CHIPS and Science Act, which extend billions of dollars in subsidies to the private sector, companies have committed an estimated $200 billion to manufacturing endeavors.
However, in the past several months, there have been signs that the manufacturing industry might be on the decline, with multiple reports signaling that the sector is heading toward or is already in a recession.
Jay Timmons, president and CEO of the National Association of Manufacturers, says that most manufacturers anticipate a recession this year, adding that “Congress failed to act on essential tax reforms, which complicates investment, increases inflationary pressures, and could stifle economic growth.”
What Do the Numbers Show?
The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) contracted for the fifth consecutive month in March, sliding to the lowest level in nearly two years. The monthly report, which identifies and examines economic trends in the industry, pointed to slowing factory activity, new orders, employment, supplier deliveries, and production.
In March, Federal Reserve data confirmed that manufacturing production tumbled by a worse-than-expected 0.5 percent month-over-month and declined 1.1 percent year-over-year.
Census Bureau numbers highlighted that new orders for U.S. manufactured goods dropped by 0.7 percent, worse than the market estimate of negative 0.5 percent. Moreover, factory orders have slipped in three of the past four months.
President Joe Biden speaks on the economy at Cuyahoga Community College Manufacturing Technology Center, in Cleveland on May 27, 2021. (Nicholas Kamm/AFP via Getty Images)
“The pace of the decline accelerated as the impact of steep interest rate hikes continued to weigh on overall demand,” Tuan Nguyen, an economist at RSM US, wrote in a note. “It has become evident that the manufacturing sector might have already slipped into a recession.”
Manufacturing employment levels fell in the first three months of 2023, according to the Bureau of Labor Statistics. In addition, the ADP National Employment Report found that private sector payrolls for manufacturing plunged by 30,000 positions in March.
Biden has taken credit for the roughly 760,000 manufacturing jobs that have been returned to the economy since the beginning of his presidency. In total, there are 12.983 million manufacturing positions, up from 12.785 before the start of the COVID-19 pandemic.
There were signs of renewed life after the April S&P Global Manufacturing PMI flash reading rose to 50.4, up from 49.2 in March, and topped market estimates. This was the first expansion in the S&P Global survey since October 2022.
At the same time, that may have been offset by abysmal results from many regional central bank manufacturing reports.
The Federal Reserve Bank of Dallas’ general business activity index for manufacturing in Texas fell in April to negative 23.4, the 11th consecutive monthly contraction and the lowest reading in nine months. The report highlighted easing production, new orders, employment, and business outlook.
The Dallas Fed Bank survey revealed that many respondents anticipate an economic slowdown.
“Business is slow as customers are waiting to see when [a] recession starts,” a primary metal manufacturing executive stated. “Most customers, when pressed, think the recession will start in summer. We are getting ready for our second layoff in the last four months.”
A fabricated metal product manufacturing executive revealed that the company had “already been notified that our credit line renewal may be difficult,” supporting widespread concerns that the failures of Silicon Valley Bank and Signature Bank could trigger tighter credit conditions.
The Richmond Fed Manufacturing Index declined for the fourth straight month in April, coming in at negative 10, from negative 5 in March. Shipments and new orders dropped to negative 7 and negative 20, respectively. The employment index rose from negative 5 to zero. Overall, companies were pessimistic about present and future local business conditions.
But the New York Fed Bank’s NY Empire State Manufacturing Index unexpectedly surged in April, climbing from negative 24.6 to 10.8 and topping market forecasts of negative 18.
The upcoming Kansas City Fed Manufacturing Index is projected to remain unchanged at 3 in April. Last month, the index touched expansion territory after five straight months of contraction.
Looking ahead, economists believe that the manufacturing sector will face tighter credit conditions amid the continuation of fallout from the banking turmoil.
“The US manufacturing sector continued to signal concerning trends during March,” Siân Jones, S&P Global Market Intelligence senior economist, wrote in the March PMI report.
“Although output rose for the first time since last October, growth was fractional, and largely supported by ramping up production following an unprecedented reduction in supply chain pressures. The timely delivery of inputs allowed firms to work through backlogs, but sparse demand amid pressure on customer spending due to higher interest rates and inflation spoke to challenges ahead for goods producers if there is little change in domestic and international client appetite.”
The Revival of US Manufacturing?
Manufacturing’s share of real GDP has steadily declined since the 1940s, representing just 11.1 percent as of the fourth quarter of 2022. But experts assert that domestic manufacturing could be rejuvenated after the COVID-19 public health crisis decimated global supply chains and as geopolitical relations deteriorate.
According to the latest annual Reshoring Index from Kearney, U.S. gross domestic manufacturing output rose at a faster pace than U.S. manufacturing imports from 14 low-cost nations and regions in Asia.
“Reshoring is, in other words, becoming both a cause and an effect of companies significantly rethinking how they construct and operate a supply chain that will carry them forward into the next decade,” the report stated.
But with allies and adversaries alike accusing the United States of protectionism through exorbitant taxpayer-funded subsidies and made-in-America requirements, a boom in domestic manufacturing could further fragment the international marketplace.
