U.S. manufacturing appears to be expanding on the surface, but factory jobs are in fact shrinking rapidly. Analysts said corporations are maintaining output while cutting hiring to prepare for a potential economic slowdown ahead.
According to the detailed components of the June manufacturing Purchasing Managers' Index (PMI) that S&P Global released on the 23rd (local time), the manufacturing employment index came in at 47.0. That was a drop of 4.6 points from May (51.6).
Reuters said this was "the lowest level since the pandemic shock in May 2020." A PMI reading of 50 is the threshold, with higher indicating expansion and lower indicating contraction.
By contrast, the composite PMI, which reflects the overall momentum in manufacturing, was tallied at 55.7. It rose from the previous month (55.1) and marked the highest level since May 2022. Output itself is increasing, but employment is instead declining.
Some note that the recent strength in manufacturing may be a temporary phenomenon driven more by inventory building than by actual demand expansion. With supply chain fears resurfacing, corporations' moves to secure raw materials and parts in advance are said to be pushing up production.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said, "The current survey results align with a situation in which it is difficult for the U.S. economy to post growth in the second quarter that significantly exceeds an annualized 1%." On the manufacturing job declines in particular, he noted, "Excluding the pandemic period, the drop in factory jobs is the largest since the 2009 global financial crisis," adding, "It reflects corporations' concerns over whether the recent demand recovery can be sustained and the burden of rising raw material prices."
The PMI is a leading economic indicator derived from surveys of purchasing and supply managers at corporations on new orders, output, inventories, employment, and more. It is regarded as an index that shows sentiment on the manufacturing floor relatively quickly.