Unlocking 2024: The Road to Recovery and Opportunity in U.S. Manufacturing

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The U.S. manufacturing sector is poised for a recovery in 2024, aiming to break a streak of disappointing results in 2023

In November 2023, the U.S. economic landscape presented a mixed picture as indicated by the Purchasing Managers’ Index (PMI) data from S&P Global. The manufacturing sector experienced a slight contraction, with the S&P Global Manufacturing PMI falling from 50 to 49.4 points, missing market expectations. This decline suggests a persistent challenge in manufacturing due to stagnant demand conditions despite improvements in production efficiency. 

On the other hand, the U.S. services industry exhibited unexpected resilience, with the S&P Global Services PMI rising from 50.6 to 52.7 points, surpassing expectations. The uptick, the quickest since July, was attributed to expanded customer bases and successful marketing strategies, highlighting the sector’s adaptability. The Composite PMI, an aggregate measure of overall private sector activity, remained unchanged at 50.7 points in November.

Employment in U.S. companies contracted for the first time in nearly three-and-a-half years, with layoffs surging, driven by subdued demand conditions and rising cost pressures. Despite employment contraction, the services sector showed improved demand conditions, marked by the return to growth in new orders after four months. 

Additionally, input price inflation eased significantly, with the slowest rise in cost burdens in over three years, particularly in the manufacturing sector. The mixed PMI data influenced a 0.2% fall in the U.S. dollar, while stocks remained broadly unchanged during the Black Friday trading session.

In December, the U.S. services sector experienced a significant slowdown, with a measure of employment dropping to the lowest level in nearly 3.5 years, according to a survey by the Institute for Supply Management (ISM). The non-manufacturing PMI fell to 50.6 in December, the lowest reading since May, compared to 52.7 in November. A reading above 50 indicates growth in the services industry, which constitutes over two-thirds of the U.S. economy. 

The slowdown in the services sector comes as demand for services surged initially when Americans resumed normal lives after COVID-19 lockdowns. However, momentum has waned, with spending shifting back to goods, which outpaced services spending in the third quarter. The measure of new orders received by services businesses dropped to 52.8 in December from 55.5 in November, and export order growth also slowed considerably. 

Services inflation remained elevated, with a measure of prices paid for inputs by businesses slipping to 57.4 from 58.3 in the previous month. Despite easing inflation and labour market conditions, financial markets expect the Federal Reserve to start cutting interest rates as soon as March 2024.

The ISM survey's measure of services sector employment plunged to 43.3 in December, the lowest level since July 2020. However, the Labor Department's payrolls report for December indicated that U.S. employers hired more workers than expected while raising wages at a solid clip.

While the past three years have been quite tumultuous, analysts and experts predict 2024 will be rosy. According to Wall Street analysts, 2024 outlook emerges with expectations of outlooks of a "mild" recession, a soft economic slowdown, and a central bank pivot toward easier policies. 

It is also expected that the S&P 500 Index will hit a record high in 2024 but consumer demand will be low with the index expected to gain less than 20% yearly. Although manufacturing is expected to expand, there are still fears that it may not recover significantly to avert a potential mild recession.