Rising interest rates hit the manufacturing sector

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The S&P Global Manufacturing Purchasing Managers’ Index was nearly flat in September. Meanwhile, a similar measure, the Institute for Supply Management’s manufacturing index, weakened more than expected as new orders and hiring plans both fell.

And construction spending in August fell for the third straight month and by the highest amount in a year and a half, the Census Bureau reported Monday. That’s thanks to rising mortgage rates, courtesy of the Federal Reserve, but the manufacturing sector is also feeling the impact of rising rates.

Manufacturing grew rapidly as it emerged from the pandemic, as demand soared for new homes and cars, electronics, appliances and even dumbwaiters, the small lifts used in factories and office buildings.

Matot, Jim Piper’s Chicago-based company, makes them and he said business has been good this year.

But “we’re like a lot of other small businesses,” Piper said. “We are budgeting for 2023 a little more cautiously than we usually would, hoarding some cash, with the general feeling of uncertainty in the economy.”

As soon as the Fed started raising interest rates, construction slowed. Now so is manufacturing, said Mark Zandi of Moody’s Analytics.

“So far, the manufacturing base has seen a number of tailwinds. Now all of those tailwinds are going to start turning into headwinds soon,” Zandi said. this point, is losing momentum and will soon be in a recession.”

The rate hikes have also made US exports more expensive overseas, said Michael Pearce of Capital Economics.

“And we’ve seen the dollar rise 10% to 15% from where it was a year ago, 18 months ago. And it’s a real headwind for the United States against its international competitors.

All of this has made manufacturers and builders more pessimistic about their future sales, according to Holly Wade of the National Federation of Independent Business.

“They are preparing for this decline, looking to reduce capital spending, because of their anticipation of this significant downturn in the economy,” she said.

On the bright side, supply chain delays and disruptions are easing, which should lower inflation going forward.

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