Companies' tendency to maintain employee numbers provides positive signals for labor markets

The results of the ISO Turkey Manufacturing PMI survey for December have been announced.

According to the survey results, where all figures measured above the 50 threshold indicate improvement in the sector, the headline PMI, which was 47.2 in November, rose to 47.4 in December 2023, yet remained below the 50 threshold for the sixth consecutive month.

In December, manufacturing industry production decreased to a level close to November, largely due to challenging market conditions. While continued slowdowns in both total new orders and new business received from abroad indicated that weakness in demand persists, this situation allowed firms to focus on their backlogs in December as well.

Despite the decrease in workloads, employment remained flat in December, ending a two-month period of contraction. While some survey participants reported a tendency to increase capacity, others reduced employment due to a decrease in new orders and resignations.

The decrease in purchasing activities occurred at the highest rate in the last 4 months. As a result, input stocks also showed a decline. Weak demand for inputs allowed suppliers to accelerate their deliveries, thus ending the 11-month trend of lengthening delivery times. Depreciation in the lira, rising wages, and increasing raw material prices led to an increase in input costs in December as well. However, a decline in the inflation rate was recorded for the fifth consecutive month. Conversely, the fastest increase in final product prices since August occurred.

New orders slowed in 9 out of 10 sectors

The Istanbul Chamber of Industry (ISO) Turkey Sectoral PMI report indicated that in the last month of 2023, new orders slowed in 9 out of 10 sectors, increasing only in food products. A similar situation applied to production. In contrast, a more positive picture emerged on the employment side.

More than half of the 10 sectors monitored increased their number of employees. On the other hand, cost inflation generally remained high. While the only sector to increase its new orders in December was food products, this increase occurred for the second consecutive month. The sharpest slowdown at the end of the year was seen in the chemical, plastic, and rubber products category. New export orders, which presented a more positive picture than total new orders, recorded an increase in 4 sectors, primarily in land and sea vehicles.

Similar to new orders, only the food products sector remained in the growth zone in terms of production. The most significant production loss was seen in non-metallic mineral products, with this decline following the increase in November.

While production and new orders generally remained stagnant in December, the picture regarding employment was more positive. While employment growth was experienced in 4 of the 10 sectors monitored in November, this number rose to 6 in December, reaching the highest level since May.

The sharpest increase in employment occurred in the land and sea vehicles sector. The sharpest decline was recorded in clothing and leather products, where the workload continued to decrease sharply.

Input costs continued to rise

While input costs continued to rise rapidly in the vast majority of sectors, the only exception was chemical, plastic, and rubber products, where inflation declined significantly to its lowest level in 7 months.

Among the 10 sectors monitored within the scope of the survey, the fastest increase in input prices occurred in land and sea vehicles. While the machinery and metal products sector led in the rate of increase in sales prices, the slowest increase was observed in the textile products sector, where firms tried to limit price increases to stimulate demand.

Purchasing activities weakened in almost all sectors in December, with the only exception being the food products sector, which slightly increased its input purchases. Input stocks, on the other hand, recorded an increase in only 2 sectors: food producers and machinery and metal products.

In the statement, S&P Global Market Intelligence Economics Director Andrew Harker, whose evaluations were included, stated that the slowdown seen in the Turkish manufacturing sector in the last month of 2023 was a summary of the challenging conditions that emerged in the second half of the year due to the effect of weak demand, and noted the following:

"Nevertheless, the fact that firms tend to maintain their employee numbers as they enter the new year provided positive signals for labor markets. While signs that cost pressures are weakening continue, this did not prevent the increase in sales prices from slowing down in December. The potential for further decline in inflation in 2024 may provide some optimism regarding the recovery of demand in the sector."