The U.S. manufacturing sector ended 2018 on a low note, according to the December 2018 Manufacturing ISM® Report On Business®. PMI® for the month measured 54.1%, down more than 5% from November, marking the lowest point in more than 12 months. Economic uncertainties are coming to a head and the global economy remains cautious. And, as headwinds mount, industry leaders are voicing their concerns.
Negative numbers across the board paint an all-but-certain picture of an impending manufacturing slowdown as we enter 2019. New orders fell heaviest in the December report, shedding 11% and suggesting that price increases due to tariffs and trade tensions may have finally cut through the economic cycle. Likewise, production fell 6.3%, marking the lowest point since October 2016. Rounding out the maelstrom is a new trend: Order backlogs did not grow in December, after 22 straight months of growth.
Employment (-2.2%), inventories (-1.7%), and imports (-0.9%) all fell as well. Customers’ inventories (0.2%) and new export orders (0.6%) were the only figures to rise in the report.
Uncertainty causes instability
Myriad domestic concerns in recent months have been catalysts for the uncertainty in the manufacturing economy. Now, industry voices are also recognizing global headwinds. Chief among them in December 2018 was the uncertainty and shaky standing of Brexit.
With Brexit still scheduled to take place in March 2019, yet drawing increased ire from voters who feel the departure was misrepresented, Britain is scrambling to put down a framework for post-Brexit import/export commerce. This has created problems that have rippled across the ocean to the United States:
“Brexit has become a problem due to labeling changes.” (Chemical Products)
“Customers are hedge buying in December as a result of announced price increases starting in January.” (Textile Mills)
In addition to Brexit concerns, there are still major unknowns on the side of tariffs. President Trump has given no clear response as to whether he plans to increase tariffs, lift them, or broker a deal that restores price stability for many major raw materials. The industry has begun to respond accordingly:
“Growth appears to have stopped. Resources still focused on re-sourcing for U.S. tariff mitigation out of China.” (Computer & Electronic Products)
“The ongoing open issues with tariffs between U.S. and China are causing longer-term concerns about costs and sourcing strategies for our manufacturing operations. We were anticipating more clarity [regarding] tariffs at the end of 2018.” (Machinery)
Without guarantees of stability or reassurance of clarity in the coming months, manufacturing companies will adapt and take evasive measures to weather any impending economic struggles.
A shutdown isn’t helping
At home, a brand-new problem surged to the forefront in December. Starting December 22 and continuing into the new year, the U.S. government has officially entered a period of shutdown. Nonessential services have been furloughed, affecting every aspect of trade — both domestic and international. And while this is yet another jarring issue for manufacturers, even more alarming is President Trump’s pledge to continue the shutdown instead of trying to end it.
Entering 2019, there’s more uncertainty and speculation than confidence in the future of the manufacturing economy. As we wait for unknowns to become clearer and headwinds to quell, we have to ask ourselves: “How long do we have before the manufacturing economy shrinks in an act of self-preservation?”