Majority Of Manufacturers Predict Recession Within The Next Year
FREMONT, CA - JULY 26: Damien Boozer and Paul Jacob work on the general assembly of the Tesla Model 3 at the Tesla factory in Fremont, California, on Thursday, July 26, 2018.
Photo by Mason Trinca for The Washington Post via Getty Images.

The majority of manufacturing leaders predict a recession within the next year due to inflationary pressures, the National Association of Manufacturers revealed on Wednesday.

The group’s Manufacturers’ Outlook Survey for the second quarter of 2022 indicated that executives are concerned about rising price levels. More than 59% said inflationary pressures “make a recession more likely in the next 12 months.” However, 83% remain “largely optimistic” about the outlook for their own companies.

Likewise, more than 90% of respondents identified higher raw material costs as one of the “primary business challenges” in the second quarter.

“Through multiple crises, manufacturers have proven remarkably resilient, but there’s no mistaking there are darker clouds on the horizon,” NAM President Jay Timmons said in a press release. Among other factors, he pointed to the Russian invasion of Ukraine and federal deficit spending as primary drivers of the high costs.

Inflation for wholesalers remained elevated as the Producer Price Index (PPI) rose 10.8% from May 2021 to May 2022, according to a Tuesday report from the U.S. Bureau of Labor Statistics. The higher expenses for businesses are driven largely by energy costs soaring by 5% during May and transportation expenses increasing nearly 3% — which occurred as prices at the pump continually reach new highs and surpass a national average of more than $5 per gallon.

Over 97% of manufacturing leaders pointed to raw material prices as a cause for higher expenses, while 84% pointed to freight and transportation costs, 80% pointed to salaries, 56% pointed to energy, and 49% pointed to a shortage of available workers.

Supply chain issues have plagued the United States economy since the onset of COVID-19 and the lockdown-induced recession. In particular, semiconductors — a key component for electronics and automobiles — have been unavailable due to lockdowns in Asian economies.

Some car manufacturers have been forced to limit or pause production due to the problem — worsening inflationary pressures as vehicle prices surge. According to the most recent Consumer Price Index (CPI) report from the Bureau of Labor Statistics, used cars and trucks are 16% more expensive year-over-year, while new vehicles are 13% more expensive.

“We believe the overall semiconductor shortage will now drift into 2024, from our earlier estimates in 2023, just because the shortages have now hit equipment and some of those factory ramps will be more challenged,” Intel CEO Pat Gelsinger explained earlier this year. He added that Intel has “invested in those equipment relationships.”

Business confidence in the manufacturing sector has declined since the spring of 2021, according to data from the Organization for Economic Cooperation and Development (OECD). Even beyond the manufacturing sector, CNBC’s most recent CFO Council Survey shows that financial executives reflected a pessimistic attitude about economic futures. Most respondents — 68% — believe a recession will occur in the first half of 2023.

“No CFO forecast a recession any later than the second half of next year, and no CFO thinks the economy will avoid a recession,” CNBC said of the 22 survey respondents. While more than 40% of CFOs believe inflation is their company’s main external risk factor, 23% point to Federal Reserve policy, and 14% to the war in Ukraine.

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