• The P. Morgan Global Manufacturing PMI inched up from 52.3 in April to 52.4 in May. However, it has largely trended lower over the past year, down from 56.0 in May 2021. Manufacturers continued to grapple with supply chain, inflationary and workforce challenges, and the most recent data reflected lingering uncertainties following the Russian invasion of Ukraine and COVID-19-related shutdowns in China.
  • Nine of the top 10 export markets had expanding manufacturing sectors in May, up from eight in the previous three months. Five markets had improved PMI readings in May relative to April: Brazil, Canada, China, Germany and Mexico.
  • The S. trade deficit fell from a record $107.65 billion in March to $87.08 billion in April. These data have been skewed in recent months by supply chain disruptions, higher petroleum prices and stronger economic growth in the U.S. relative to other markets.

The NAM’s quarterly survey of manufacturers highlights widespread concerns that a recession may be on the horizon, as well as ongoing worries about inflation, among other issues.

A recession? 59.3% of survey respondents said they believed inflationary pressures would make a recession more likely in the next year.

  • 52% of respondents said they did not think the Fed could prevent a recession in 2022 or 2023.

The impact: Three quarters of manufacturers felt inflationary pressures were worse in quarter two than they were six months ago.

  • For manufacturing firms that have had to raise prices, the top sources of inflation were raw material prices (97.2%), freight and transportation costs (83.9%), wages and salaries (79.5%), and energy costs (55.9%).

Materials costs: Manufacturers said they expect raw material costs to rise 6.9%, slightly less than in quarter one but still higher than normal.

  • Increased raw material costs were the most common primary business challenge, cited by 90.1% of survey respondents.

Supply chain woes: 85.5% of manufacturers cited supply chain challenges as a primary concern and most manufacturers were not optimistic about supply chain disruptions easing up in 2022.

  • Only 14.6% of respondents said they expected the supply chain to improve by the end of the year, with 53.1% saying they expect some abatement in 2023.

Optimism persists: 82.6% of manufacturing leaders felt somewhat or very positive about their company outlook, down from 88.8% in the first quarter.

  • Despite the drop, it was the sixth consecutive quarter in which the figure exceeded 80%.
  • Small manufacturers with less than 50 employees were less optimistic (72.5% positive) than their medium (85.5% positive) and large (84.8% positive) counterparts.

Our take: “Through multiple crises, manufacturers have proven remarkably resilient, but there’s no mistaking there are darker clouds on the horizon.” said NAM President and CEO Jay Timmons.

  • Congress should act on “manufacturers’ solutions to our supply chain challenges and pass the China competition bill—or Bipartisan Innovation Act,” he continued.
  • “Though it won’t solve every issue, this will give us many of the tools needed to ramp up domestic manufacturing and strengthen our supply chains. That’s why 88% of manufacturers in our survey see it as an important piece of legislation—and Congress needs to move swiftly to get it to President Biden’s desk.”

NAM in the news: In a CNBC appearance and a CNN news story this morning, Timmons reinforced that policymakers should work to help manufacturers remain competitive.