The RSM US Manufacturing Outlook Index moved sideways in July as manufacturing firms in four of the five Federal Reserve regions again reported outright declines in activity as well as declines in new orders.
Only the New York region reported increased activity and a rise in new orders, and even that was minimal.
The RSM US Manufacturing Outlook Index slipped back to 1.8 standard deviations below normal, the 15th consecutive month of negative values.
But the overall decline is unlikely to last over the next year as the economy moves past a peak in long-term interest rates and the manufacturing construction boom turns to manufacturing activity next year.
The RSM US Manufacturing Outlook Index slipped back to 1.8 standard deviations below normal, the 15th consecutive month of negative values. The index is based on surveys of manufacturers conducted by five regional Federal Reserve banks.
While the current reading of manufacturing activity is consistent with recessions in past business cycles, it would probably take several more months of decline in industrial production and a sharp drop in employment and consumer spending to declare the end of the current business cycle.
We would point to the recurring examples of midcycle declines in manufacturing in an economy now dominated by the service sector.
We should also note the usual ups and downs in current activity reported by manufacturing firms and the difficulty of pinpointing turning points. Nevertheless, there has been a gradual improvement after what now appears to be the low point reached this past March.
We expect increased military and infrastructure spending to have a positive effect. And there is early evidence in the jump in manufacturing construction, spurred on by the government’s industrial policy to promote domestic semiconductor manufacturing.
New York
Manufacturing activity in New York state moved sideways in the month, according to the survey conducted July 3-11.
Read more of RSM’s perspectives on the manufacturing sector.
Respondents were equally divided, with 29% reporting that conditions had improved, while 27% reported that conditions had worsened. Both current shipments and new orders slipped a bit but remained expansionary.
The number of employees increased for the first time in five months while the number of hours worked held steady.
Indices for prices paid and received, which peaked in April 2022, continued to moderate.
Finally, expectations for activity over the next six months softened again along with the capital spending index.
Philadelphia
Manufacturing firms in the Philadelphia Fed region continued to report a decline in activity and new orders during the month. Furthermore, current shipments plunged and have now declined in four of the past five months. Firms have also reported employment edging lower in each of the months since March.
Prices received jumped higher amid an ongoing drop in prices paid. In special questions, firms are anticipating 1% to 3% increases in energy prices this year, and 2% to 3% increases in prices of raw and intermediate goods.
Nearly 58% of the firms said that wages and compensation costs had increased over the past three months, 43% reported no change, and none reported decreases. The median estimate of wages and benefits this year is for a 4% to 5% increase.
Richmond
The Richmond Fed characterized manufacturing activity as sluggish in July. Both shipments and new orders edged lower and many firms continued to report reductions in order backlogs and vendor lead time.
Interestingly, employment turned upward in the region that has long reported shortages of qualified workers.
Firms reported that the average growth rates of prices paid and prices received decreased somewhat in July, with expectations of further moderation over the next 12 months.
Survey results were released on July 25.
Kansas City
Manufacturing activity in the Kansas City region declined in July, with the pace of decline easing slightly for durable goods and holding steady for nondurable goods.
While the production index decreased moderately, the volume of shipments and new orders, and the backlog of orders, all fell significantly.
The index for employment turned positive again after last month’s sharp decrease. Employment increases were reported in each month since the pandemic with the exception of this April and June.
In special questions, a majority of firms reported that profit margins decreased significantly (11% of firms reporting) or decreased slightly (45%) since the beginning of the year. While 17% of firms reported no change in profit margins, 23% reported a slight increase, and 4% reported a significant increase.
About a quarter of firms reported that supply chains were much better, while nearly half said they were slightly better. And while 10% of firms reported no change in the supply chain, 10% reported they were slightly worse, 2% reported they were much worse, and only 3% had not experienced supply chain issues over the past year.
Dallas
Texas factory activity declined for the third month in a row to levels indicative of a modest contraction in output.
As of July, the new orders index has been in negative territory for more than a year and edged down further. The capacity utilization and shipments indexes improved slightly but remained contractionary. The capital expenditures index have continued to bounce around in the same low or slightly negative range since February.
Labor market measures suggest faster growth in employment and longer workweeks in July. Nearly a quarter of firms, or 23%, noted net hiring, while 13% reported net layoffs..
Price pressures increased in July but remained subdued, while wage growth moderated.
Survey data was collected during the week of July 18 to 26, with responses from 84 Texas manufacturers.
