Manufacturing Slowdown Could Reveal Deeper Issues Among SMBs

Small businesses (SMBs) make up more than 98 percent of the U.S. manufacturing sector, according to the National Association of Manufacturers. So when small business confidence takes a turn for the worse, the manufacturing sector is particularly impacted.

While SMB outlook reached record levels over the past year, what goes up must come down. Indeed, it appears time for entrepreneurs to reflect rising concerns over the economy, trade and other factors adding pressure to future performance. As talk of a possible recession in the near future rises, small businesses are expected to maintain a more pessimistic outlook as well. Now, new data suggests that a slowdown in the nation’s manufacturing sector is likely contributing to that drop in optimism.

“Historically, the manufacturing sector weakens ahead of the overall economy due to its cyclical nature,” said Bank of the West Chief Economist Scott Anderson in a note to investors earlier this month, according to The Associated Press. “But, eventually, the weakness spreads from manufacturing to the services side of the economy, triggering a more general economic slowdown.”

Corporate executives and analysts remain split on when an economic recession will come, though the general consensus is that it’s headed for the U.S. market in the near future. The Federal Reserve noted earlier this month that it has “seen some crosscurrents and conflicting signals,” and that “financial conditions are now less supportive of growth than they were earlier last year.”

Whether the U.S. economy is already in the beginning of a recession, or whether it’s not coming for a few years, the latest analysis on the manufacturing space suggests small businesses will be among the first firms to feel the effects.

In this week’s B2B Data Digest, PYMNTS breaks down the key figures of new data from the Commerce Department, the Federal Reserve and others about how concerns over a slowdown in U.S. manufacturing are connected to overall small business sentiment.

According to government analysis of 2018’s third quarter economic activity, 11.4 percent of U.S. gross domestic product stems from the manufacturing space. Reports noted that this is a relatively small portion, but the large portion of small businesses in the industry means it is an important space to watch for overall SMB sentiment and signs of a broader recession ahead.

The amount factory orders increased in January, according to the Commerce Department: 0.1 percent. The figure, released earlier this month, may be on par with December’s order levels. However, reports noted that the increase is still “tiny,” and is lower than what economists had predicted for the month.

According to The Associated Press, the volume of manufacturing shipments has declined four months in a row, with shipments declining by 0.4 percent in December. Separate data from the Federal Reserve, just days before the Commerce Department’s notice, also revealed a 1.2 percent increase in wholesale inventories — the goods manufacturers have produced but not sold. Reports said the figure could reflect a continued rise in unsold inventory in the coming months.

The amount that production levels decreased among U.S. factories in February: 0.4 percent. According to the Fed, January levels decreased 0.5 percent. The figures followed analysis from the Institute for Supply Management earlier this year, and its survey of manufacturers led to an index decline between January and February, reports said.