Throughout Europe and the United States, the manufacturing sector is going through a dismal time, given a significant decrease in fresh orders for goods last month.
While this has yet to become apparent as companies are currently chipping through the backlog of orders caused by supply chain issues during much of the past couple of years, recent surveys conducted by S&P Global show that manufacturers in the United States stepped into the contraction zone last month.
Based on a similar survey conducted by the Institute for Supply Management (ISM), this is the seventh month in a row that the US manufacturing sector has experienced contraction. This shows how contraction is moving at a much faster rate than anticipated.
With Europe likewise sliding into an economic recession and recent reports showing two consecutive quarters of significantly reduced output among manufacturers in the region, analysts are concerned that it is unlikely that comping backlogged orders will be enough to keep the industry going.
The Situation in China
Interestingly enough, even China – considered a giant in the manufacturing sector – is not recovering as quickly as it wants to. Chinese exports dropped by 7.5% last month compared to last year’s figures. This is the biggest decline experienced by the industry since the beginning of this year.
The country’s dismal trade performance is a reflection of the decreased demand for goods made in China, as well as other economic issues like a serious downturn in the country’s real estate sector, increasing unemployment, and stricter government controls on the industrial scene.
Why the Decline?
According to Tom Garretson, a senior portfolio strategist for the North American arm of RBC Wealth Management, the shift from goods to services is what’s driving the reduced output from the manufacturing sector.
Garretson pointed out how service sector indexes are picking up even as consumer demand for goods has gone down. He added that tighter financial conditions, the result of tightening measures on the past of central banks across the globe, have also brought challenging times to the manufacturing sector.
