U.S. manufacturing and freight activity has declined for seven months running, reflected in falling consumption of diesel and other distillate fuel oils as well as industrial electricity sales.
Manufacturers reported another widespread downturn in May, according to the monthly purchasing managers' survey published by the Institute for Supply Management (ISM).
The ISM manufacturing index slipped to 46.9 (14th percentile for all months since 1980) and has been continuously below the 50-point threshold dividing expansion from contraction since November.
The index has already been below 50 for more months than in most mid-cycle slowdowns (generally 8 months or fewer) though not as long as most recessions (generally 11 months or more).
The forward-looking new orders component slumped to just 42.6 (6th percentile) signalling activity is likely to continue falling for several more months at least.
Chartbook: U.S. manufacturing and energy use
Because manufacturing output is closely correlated with consumption of distillate fuel oils and industrial electricity use, the downturn is filtering through into significant reductions in energy consumption.
Distillate fuel oil consumption declined in seven of the eight months ending in March 2023, the most recent data available (“Petroleum supply monthly”, U.S. Energy Information Administration, May 31).
Distillate use was down by more than 3% in the first three months of 2023 compared with the same period in 2022 (22nd percentile for all three-month overlapping periods since 1980).
Electricity sales to industrial customers also fell in seven of the eight months ending in February 2023, again the most recent data available (“Monthly energy review”, EIA, May 25).
Between December 2022 and February 2023, industrial power sales were down more 2.4% compared with a year earlier (14th percentile for all three-month periods since 1980).
The decline in energy use is consistent with other indicators showing the industrial economy is in the midst of a widespread and prolonged cyclical downturn.
Reflecting the weakness of industrial demand, the total number of shipping containers hauled by the major U.S. railroads was down by more than 10% in the first 21 weeks of 2023 compared with the same period in 2022.
Given the continued drop in new orders and the still-high level of business inventories in relation to sales, the downturn is likely to extend at least through the third quarter of 2023.
Only the residual strength of service sector spending has so far prevented the “industrial recession” becoming a whole-economy recession.
Related columns:
- U.S. industrial recession cuts diesel and electricity use (May 4, 2023)
- Hard-ish landing has already arrived for U.S. manufacturers (April 4, 2023)
- U.S. diesel consumption falls as economy slows (March 1, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
