U.S. Manufacturers Face Setback in Diesel Demand, Prolonging Downturn

Unexpected Fall in Business Activity

In October, U.S. manufacturers experienced a widespread decline in business activity, leading to a setback in the sector’s recovery from the prolonged downturn that began in late 2022.

The Institute for Supply Management’s manufacturing purchasing managers index dropped to 46.7 in October, down from 49.0 in September. This decline, the largest since June 2022, dashed hopes that the sector’s downturn was nearing an end.

The new orders component of the index suggests that the manufacturing slump is likely to continue for several more months.

Longer Downturn Than Expected

The current manufacturing downturn has already lasted longer than typical mid-cycle slowdowns. If it proves to be a mid-cycle slowdown, it would be the longest since World War II.

Despite its duration, the downturn has been relatively shallow and has not significantly affected the larger services sector.

Factors Contributing to the Decline

While strikes at major automakers in October may have played a role in the decline, the sudden slowdown in manufacturing activity was more extensive than anticipated.

Thirteen different industrial sectors reported contraction in October, including printing, textiles, electrical equipment, machinery, and more. Only the food and drink sector and plastics and rubber reported growth.

Postponed Expansion

Manufacturing activity had seemed to be improving in the third quarter, with energy consumption by industrial users stabilizing. However, the recent weakness in manufacturing indicates a delay in the expected recovery.

If manufacturing does rebound, diesel stocks may deplete rapidly, putting upward pressure on industrial prices. This could exacerbate concerns about tight energy supplies and inflation.

– U.S. manufacturing rebound will stretch diesel supplies(October 5, 2023)

– Global diesel shortage boosts prices (September 13, 2023)

– Prolonged U.S. manufacturing slowdown barely dents energy use (September 5, 2023)

– U.S. diesel prices surge anticipating a soft landing (August 11, 2023)

John Kemp is a market analyst. The views expressed are his own. Follow him on Twitter: @JKempEnergy