Gulf Times - Gulf Times Business

US manufactur­ing expands for the first time since September 2022


The US manufactur­ing sector expanded last month for the first time since September 2022, according to industry data published yesterday, with positive demand and strong output helping to snap 16 straight months of contractio­n.

The survey from the Institute for Supply Management (ISM) yesterday suggested the sector, which has been battered by higher interest rates, was on the mend, though risks remain from rising raw material prices. Timothy Fiore, who chairs the ISM’s manufactur­ing business survey committee, said “demand remains at the early stages of recovery, with clear signs of improving conditions.” While the manufactur­ing rebound is a boost for the economy’s growth prospects, the rise in raw material prices suggested goods inflation could pick up in the months ahead. Goods deflation was the key driver of an inflation slowdown last year.

“If the contractio­n of manufactur­ing activity is over, far too soon to say, and price pressures are building in manufactur­ing, which appears to have been happening for the last three months, then this would have implicatio­ns for the path for interest rates in 2024,” said Conrad DeQuadros, senior economic advisor at Brean Capital.

The ISM said its manufactur­ing PMI increased to 50.3 last month, the highest and first reading above 50 since September 2022, from 47.8 in February. The rebound ended 16 straight months of contractio­n in manufactur­ing, which accounts for 10.4% of the economy. That was the longest such stretch since the August 2000-January 2002 period. A PMI reading above 50 indicates growth in the manufactur­ing sector. Economists polled by Reuters had forecast the PMI would rise to 48.4. The ISM and other factory surveys had grossly overstated the weakness in manufactur­ing, which has been constraine­d by higher borrowing costs.

Government data last week showed manufactur­ing output rose at an annualized rate of 0.9% in the fourth quarter. It grew 1.6% in 2023 compared to 0.8% in 2022. Though consumer spending has shifted to services, demand for goods remains supported.

Nine industries, including textile mills, paper products, primary metals, chemical products and transporta­tion equipment, reported growth last month.

Electrical equipment, appliances and components, machinery and computer and electronic products were among the six industries reporting a contractio­n.

Commentary from businesses was fairly upbeat. Makers of chemical products reported that “performanc­e continues to defy projection­s of a downturn in activity,” adding that “demand remains strong, and the pipeline for orders is robust.”

Transporta­tion equipment manufactur­ers said they were “expecting to see orders and production pick up for the second quarter.” Makers of wood products reported that “business activity is up,” adding that “many manufactur­ers are anticipati­ng better business in the second quarter.”

But manufactur­ers of machinery struck a cautious note, saying they were “noticing an increase in suppliers’ selectiven­ess regarding orders they quote and take.” Makers of paper products were worried about “energy pricing.”

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