The United States added 8,000 manufacturing jobs in December, making for a total of 379,000 new manufacturing jobs added in 2022, according to the Bureau of Labor Statistics. This marks a 3% rise in new manufacturing jobs compared to 2021, but the hiring pace in the last few months has slowed.
The U.S. unemployment rate declined from 3.7% in November to 3.5% in December, an unfavorable dip for the Federal Reserve, which is trying to cool the labor market. In the manufacturing sector, the unemployment rate was already at a historic low of 2.7% in November and dropped to 1.8% in December. This is the lowest unemployment rate on record for the manufacturing sector since data was first collected in 2000, highlighting extremely tight labor conditions in the sector, which still has over 779,000 open job positions.
The data likely supports the Fed continuing to raise rates, albeit at a slower pace. In 2023, the Fed expects unemployment to rise one percentage point. We estimate that an increase of 1% in unemployment would mean approximately 1.7 million jobs could be lost as the Fed tries to slow growth.
The likelihood of a recession remains high, and we believe one will occur sometime in the second half of the year but it likely will be shallow due to excess personal savings estimated at over $1 trillion. According to the Sahm Recession Indicator, we should watch the three-month moving average of the national unemployment rate to see if it rises by 0.5 percentage points or more relative to its low during the previous 12 months. Should that occur, it would be a reliable early warning sign that we’re in the beginning of a recession.
Over the last five months, the United States has seen manufacturing payroll numbers shrink consistently. Despite the steady decline of this metric, the sector has shown resilience. Figures remain in the growth column, and we are not seeing large-scale manufacturing layoffs. That may change in 2023, given that the month-over-month durable goods orders went negative in November to -2.1% from October, signaling softening manufacturing activity lies ahead.
Given all of this, we anticipate the sector will continue to suffer from a lack of skilled labor to fill the increasingly technical manufacturing positions that are becoming more commonplace as companies adopt automation and digitization of their businesses.