Manufacturing Sharply Declines, Construction Spending Up, Small Business Wage Growth Slows
Manufacturing Conditions Decline
Demand indicators for manufacturing ended 2022 with their sharpest monthly decline since the early months of the pandemic, with analysts at S&P Global reporting significant December drops in production and new orders.
The financial data firm’s monthly national survey of purchasing managers showed demand among domestic and foreign customers contracting at rates not seen since May 2020. That created a slowdown in manufacturing-related hiring as pressure on capacity waned and work backlogs fell sharply.
S&P’s purchasing managers index registered at 46.2 for December, down from 47.7 in the prior month, with numbers below 50 indicating manufacturing contraction. Excluding the initial pandemic period, companies reduced their purchases of items to be placed in inventory stocks at the steepest rate since 2009.
“Concerns regarding the outlook for demand weighed on hiring decisions,” S&P Global Senior Economist Sian Jones said in a statement Tuesday. “Job creation was only slight, and largely linked to skilled hires, as firms displayed caution.”
Among the bright spots, lower demand and greater availability of materials at supply firms led to a further easing of inflationary pressures. “Slower upticks in inflation signal the impact of Fed policy on prices, but growing uncertainty and tumbling demand suggest challenges for manufacturers will roll over into the new year,” Jones said.
Construction Spending Rises
Total U.S. construction spending rose 0.2% from the prior month and 8.5% from a year earlier to top $1.8 trillion in November, with gains led largely by nonresidential construction including manufacturing plants and hotels, the Commerce Department reported Tuesday.
Data showed private, nonresidential spending growth led by manufacturing facilities, which rose 6.4% for the month and increased nearly 43% from a year earlier. That was followed by lodging projects, which rose 0.2% for the month and 30% for the year. Overall nonresidential project spending totaled approximately $930 billion in November, up 0.9% for the month and rising 11.8% year-over-year.
Residential construction totaled approximately $877 billion, down 0.5% for the month but up 5.3% for the year. New multifamily projects were the key generator, rising 2.4% for the month and increasing 10.7% for the year, while single-family construction declined 2.9% for the month and dropped 10.2% for the year.
“A variety of private nonresidential categories, as well as multifamily projects, posted solid spending gains in November,” said Ken Simonson, chief economist for the Associated General Contractors of America trade group, in a Tuesday statement on the government numbers.
“Many of these segments should continue to do well in 2023,” Simonson said. “But the timing of public construction, while well-funded, remains unclear.” He referenced delays in public infrastructure projects already approved for funding through federal programs passed last year by Congress.
Small Business Wage Growth Slows
Hourly pay growth slowed in December as small business hiring remained strong by historical standards, according to the latest monthly report from payroll services provider Paychex and consulting firm IHS Markit.
The national report tracking businesses with fewer than 50 workers found hourly wages growing at an annual rate of 4.95% in December, down 1.5 percentage points from the growth rate that was seen a year earlier. New hiring remained relatively unchanged from the prior month, with the South now leading hiring among U.S. region for the past nine consecutive months, though the national rate of pay growth in December was the lowest since March 2022.
“Small business hourly wage growth is starting to slow as the Fed takes measures to fight inflation,” James Diffley, chief regional economist at IHS Markit, said in a statement Tuesday. Paychex CEO John Gibson said small business owners and their employees “are working more hours and finding ways to deal with inflation and higher credit costs.”
Leisure and hospitality ranked first for hourly earnings growth at 6.75%, though it also ranked last among industries tracked for change in weekly hours worked in December at minus 0.52%. National numbers showed hours worked in December for all industries rising 0.48% for the month, marking the fourth consecutive month of increases.