Inbound shipments to the United States continue to favor eastern and central ports, including Houston, at the expense of the West Coast ports. The rerouting to the East Coast ports began in late 2021 when congestion on the West Coast forced shippers to look elsewhere. The ports have recovered since then, but Los Angeles and Long Beach, whose ports historically handle close to 40% of the U.S. container volume, are now tied up in protracted labor negotiations that started in the summer of 2020 and shippers continue to shun the two ports as a precaution.
Other manufacturing sector indicators signal a slowdown as well. The Institute for Supply Management’s Manufacturing Purchasing Managers Index for new orders has been in contractionary territory since September 2022. The drop is consistent with a growing level of inventories compared to sales over the last several months. We will see discounting and incentives continue over the next several months in an effort to move goods off company balance sheets.
Lastly, we see continued contraction in manufacturing and services activity, according to the ISM index. The headline index fell below 50 in November 2022 and hasn’t recovered from that slide. Manufacturing services dipped into contractionary territory to 49.2 in December 2022 and recovered, but signs suggest that that index, too, will slump into contractionary territory in the coming periods.
Over the last two months, the manufacturing sector responded to the slowdown by holding payrolls essentially flat; February’s initial payroll number of -4,000 was revised upward to -1,000 and March’s payroll figure also came in at -1,000. Manufacturers are loath to lay off workers after struggling so hard to increase staffing since the pandemic. Due to the difficulty in hiring, companies that can withstand the slowdown will work to retain workers for longer to have the necessary capacity when activity picks up again. That may not occur until sometime in early 2024 when the Fed may seek to soften rates.
