Survey data released this month from the Federal Reserve Bank’s New York and Philadelphia districts shows the greatest manufacturing index drop ever recorded in those regions for the month of March, with overall readings well below earlier estimates and in negative territory. The Federal Reserve Bank of Richmond’s survey of manufacturing activity remained close to zero, rising slightly from February into positive territory. Negative readings indicate contraction.
Given the staggering economic impact of factory slowdowns and shutdowns resulting from the growing number of cases of the new coronavirus (COVID-19) in markets around the world, these March results do not come as a complete surprise. The final two Federal Reserve districts will report data in the coming days, with Kansas City expected on March 26 and Dallas expected on March 30. March estimates for these remaining districts are not optimistic, with expected negative readings of -10 and -7, respectively.
Lower employee counts, weak business conditions
Consistent themes across all three regions included decreased number of employees and a decline in future business conditions. Richmond reported the greatest decline in employees and the most negative reading. New York reported the lowest reading in future business conditions since 2009 and Richmond fell into negative territory. Manufacturers in all regions anticipate weaker business conditions in the coming months including decreased new orders and shipments and persistent labor challenges.
A summary of results reported by each region are included below for comparison.
About the surveys
Regional manufacturing surveys measure economic health and are used to gauge the overall manufacturing health of the nation. Monthly results provide visibility to business and economic activity for the manufacturing sector, which accounts for approximately 11% of U.S. GDP, according to the Bureau of Economic Analysis. The geographies covered by each Federal Reserve district are as follows:
- New York – New York State, 12 northern counties of New Jersey, Fairfield County in Connecticut, Puerto Rico, and the U.S. Virgin Islands
- Philadelphia – Eastern Pennsylvania, southern New Jersey and Delaware
- Richmond – Ohio, western Pennsylvania, the northern panhandle of West Virginia, and eastern Kentucky
- Kansas City – Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and Western Missouri
- Dallas – Texas, northern Louisiana, and southern New Mexico
- Weak economic and business activity indicated by manufacturers will be reflected in the second quarter GDP results.
- Regional data signals contraction in two of the three regions reporting, but the length and severity of contraction is still unknown.
- Manufacturers should identify ways to adapt their business in these uncertain times.