US Manufacturing Shows Signs of Recovery in 2024

US Manufacturing Shows Signs of Recovery in 2024

The U.S. manufacturing sector seems to be turning around after a long but not too severe slowdown in business. According to the Institute for Supply Management (ISM), the manufacturing purchasing managers index went up to 49.1 in January from December's 47.1. This suggests that there might be an increase in energy use later in 2024.

This slowdown has been unusual, lasting for 15 months since October 2022. It's longer than a typical slow period but not as bad as a full recession. The index has been below 50, showing contraction, for this whole period. Even though it lasted longer than usual, the slowdown hasn't been as bad as a regular recession. Monthly production volumes went down by less than 2% since the peak in October 2022, based on data from the Federal Reserve.

This downturn is more like a mid-cycle slow period than a full-blown recession. Now, as production and new orders go up in January, it looks like the manufacturing sector is getting back on its feet.

The production sub-index went up to 50.4 in January from 50.3 in December, and the new orders sub-index rose to 52.5 from 47.1 in December. These positive signs suggest that the manufacturing sector will likely grow in the first few months of 2024.

Why did this manufacturing slowdown last so long, and how is it different from what usually happens? These questions are important as the sector seems ready for a comeback. The unique nature of this slowdown, both in how long it lasted and how bad it got, makes us want to dig deeper into what's been influencing the manufacturing world.

The use of diesel and other distillate fuel oils, which is closely tied to manufacturing and freight, is expected to go up again in 2024. The amount of distillates supplied to the domestic market has been the same or slightly less since it peaked in the middle of 2022. This decrease, around 100,000 barrels per day, matches the small drop in manufacturing output during the same time.

While biodiesel and renewable diesel have helped keep fuel consumption steady, the chance of manufacturing growing again hints at diesel consumption going up in the first half of 2024. However, there's still a challenge because distillate inventories were at 131 million barrels on January 26, 10 million barrels below the usual average.

The gap in distillate inventories has gone down from 19 million barrels in mid-November, but stocks are still tight for this point in the business cycle. This brings up concerns about what might happen to fuel prices if manufacturing keeps growing. The idea that fuel inventories might go down and prices might go up shows the delicate situation the industry is in.

How will the manufacturing sector's comeback affect diesel use, and what role will distillate inventories play in shaping fuel prices? These questions are important to understand the dynamics of the economy and what it might mean for different industries.

In summary, the U.S. manufacturing sector's recent positive signs suggest that the long slowdown might be ending. With production and new orders going up, the sector might be getting back on track, leading to more energy use. This, in turn, is expected to boost diesel and distillate fuel oil consumption in 2024.

However, challenges are still there, especially with tight distillate inventories. The shortage, even though it's getting smaller, raises worries about what might happen to fuel prices as the manufacturing sector continues to recover. As we navigate through these uncertainties, understanding how strong the manufacturing sector is and its connection to broader economic trends is crucial to see where the U.S. economy might be headed in the coming months.

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