Sector Morsel

December 2022

Manufacturing: near term pressures, but longer term positives.

Key takeaways

  • The latest Institute for Supply Management (ISM) manufacturing survey suggests the sector contracted in November, the first time since May 2020. And it’s clear that following the strong bounce back after the pandemic, that growth is at least moderating.
  • In the near term, manufacturing faces downward pressure as the tailwind from easing global supply chain fades and final demand undergoes a cyclical weakening. The strong dollar and an inventory overhang in retail are further drags on the sector.
  • This moderation is starting to become evident in Bank of America data. Small businesses in manufacturing are showing slower growth in payroll payments –down from a peak of 16.4% YoY in March to 7.6% in October. And payments per small business client for this group has also flattened out lately, after growing at a strong pace for the past two years.
  • But we see two reasons to be cheerful in the longer run. First, the auto sector likely has considerable pent-up demand following the chip shortage, which should support manufacturing in this space. And second, ‘onshoring’, aimed at shortening supply chains and bringing manufacturing back to the US from overseas, should provide longer-lasting support.


Read our full analysis for a more in-depth look at these trends.