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Manufacturers' outlook dims as recession fears grow

·2 min read

U.S. manufacturers' sentiment declined in the second quarter of 2022 as companies grappled with soaring inflation, worker shortages and supply chain struggles.

While optimism for their own businesses still remained strong, leaders expressed concerns over the economy as a whole and doubts about the Federal Reserve's ability to avoid a recession.

The National Association of Manufacturers' Q2 2022 Manufacturers' Outlook Survey released Wednesday showed that the manufacturing outlook index dropped to 55 last quarter, down from 59 in Q1. Over the same period, the percentage of respondents who expressed a positive outlook for their own firms dropped from 88.8% in Q1 to 82.6% in Q2.

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In the latest survey, manufacturers overwhelmingly pointed to increases in raw material costs as their top business challenge, with 90.1% of respondents citing it as a primary issue they are facing.

"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 in a statement announcing the survey's results. "A majority of our surveyed members believe inflationary pressures are making a recession more likely within the next year."

Three-quarters of manufacturers told the NAM that inflationary pressures were worse today than six months ago, and more than half (59.3%) said they believed inflationary pressures would make a recession more likely in the next 12 months.

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Manufacturers also did not express optimism that the Federal Reserve would be able to prevent a recession as the central bank battles to curb inflation that is currently at a 40-year high.

More than 52% of respondents said they did not believe the Fed would be able to avert a recession in 2022 or 2023, while only 11.6% answered that the Fed would be successful in achieving a "soft landing." The remaining 36.3% said they were uncertain about whether the Fed could steer the U.S. out of inflation while avoiding a recession this year or next.

"Russia’s war on Ukraine has undeniably exacerbated higher energy and food costs," Timmons said. "This, along with record deficit spending since the pandemic began, has created the highest inflation since 1981."

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He added, "But actions here at home can help ease these pressures, including first and foremost harnessing every energy resource available to us domestically and quickly—and refraining from imposing new taxes on manufacturers or families."