While the state of U.S. manufacturing for year end 2022 and the start of 2023 doesn’t look great, data seems to point to New York manufacturers facing tougher times than others. In general, 2022 ended up better than most thought it would but worse than they had hoped. The picture – based on January data – is somewhat dimmer for New York manufacturing, for at least the first half of 2023.
The S&P Global U.S. Manufacturing PMI for December was 46.2 (seasonally adjusted), a decrease from 47.4 in November the first time it fell below 50 since June 2020 and a decline in the sector’s health driven by weak demand (attributed to economic uncertainties and inflation), which drove output and new order contractions. By January 2023, it was slightly higher, showing contraction easing but factory activity falling for the third straight month. New orders, output, and inventories were down. Sales were subdued and demand was weak. Input costs and output charges were increasing even though supplier delivery times were stable and input buying contracted. Still, business confidence was up with hopes of stronger demand ahead, greater supply chain stability, and new product investments. (Trading Economics. “United States Manufacturing PMI.” https://tradingeconomics.com/united-states/manufacturing-pmi)
CFO.com reports: “The silver lining in all this, if there is one, is that December data showed cost burdens softening — the most since July 2020. ‘Respondents said lower prices for fuel, metals, and oil-related products dampened the overall upturn in operating expenses,’ according to S&P. Selling prices to customers also slowed at the fastest pace in two years because manufacturers passed through savings in an effort to stimulate sales amid the strong dollar.” (Ryan, Vincent. CFO.com, “December’s 64.2 Manufacturing PMI Shows Industry Contracted.” January 4, 2022. https://www.cfo.com/risk-compliance/supply-chain/2023/01/manufacturing-contraction-pmi-purchasing-managers-index-sp-weak-demand/)
According to January’s Empire State Manufacturing Survey, manufacturing activity in the state saw a big decline. As noted in the report issued by The Federal Reserve Bank of New York (The Fed), “The general business conditions index fell 22 points to -32.9, its lowest level since mid-2020 and the fifth worst reading in the survey’s history.”
- 44% of respondents indicated conditions worsened during the month, while 11% saw improvements.
- New Orders Index dropped 28 points to -31.1.
- Shipments Index dropped 28 points to -22.4.
- Unfilled Orders Index decreased to -14.3, so more orders were getting filled.
- Delivery times were unchanged.
- Inventories Index was steady at 4.5, “pointing to a small increase in inventories.”
- Employment growth stalled.
- The average workweek shortened.
- Input price increases slowed dramatically.
- Selling price increases moderated.
The report also states: “Looking ahead, firms expect little improvement in business conditions over the next six months.”
How are manufacturing companies responding? The 2023 BDO Manufacturing CFO Outlook Survey identifies the strategies survey participants indicated they are taking to build resilience in 2023, including 48% taking Inflation Reduction Act clean energy incentives; 39% cost optimization/reduction; 36% digital transformation; 25% restructuring or reorganizing; and 21% are focused on understanding tax implications of business decisions. (Note that two of the five actions relate to tax planning and strategy.)
While you focus on what you can do from a manufacturing point of view to ride out these uncertain times, remember you can count on RBT CPAs accounting, tax, audit, and business advisory professionals to help your business develop and execute a tax plan to help build overall business resilience. We’ve been serving manufacturing companies in the Hudson Valley and beyond for over 50 years and believe we succeed when we help our clients succeed.
To learn more about creating a tax strategy that promotes resilience, give RBT CPAs a call today.