The RSM US Manufacturing Outlook Index indicates a slowing manufacturing sector. This month’s reading of 1.47 standard deviations below normal manufacturing activity is the fourth month of decreased manufacturing since May after nearly two years of expansion.
While employment remains solid, current shipments were lower in three of the five Federal Reserve Bank regions included in the index, and, most-telling, new orders decreased across the board.
There were also indications that prices were retreating—a sign of decreasing demand in conjunction with supply-chain improvements—amid continued employment gains and wage pressure. That suggests a sector playing catch-up in a still-tight labor market.
While the service sector is the predominant employer in today’s economy, employment in the production sector has yet to show signs of fatigue.
That could have positive implications for downstream employment and overall demand once inflation pressures have stabilized.
Regional results
Our index is a composite of surveys of current manufacturing activity conducted by five regional Federal Reserve banks. The index compares current activity to previous years.
Manufacturing activity in the New York region deteriorated sharply over the month, according to a survey conducted Aug. 2-9. The general business conditions index dropped to levels last hit during the past two recessions as shipments and new orders plummeted.
The employment index dropped as well but remains expansionary. Supply chain improvements included delivery times not lengthening for the first time in two years, increased inventories and a decline in prices paid.
After three non-stellar months, manufacturing activity in the Philadelphia region rebounded somewhat, according to a survey taken Aug. 8-15.
Most firms reported no change in current activity, while 26% of firms reported increases and 20% reported decreased activity. The current shipments index increased, but the new orders index remained negative for the third consecutive month.
On balance, firms reported increases in manufacturing employment, with only 4% reporting lower employment. Indexes for prices paid and prices received remained elevated but declined for the fourth consecutive month.
The outlook for the next six months has been negative for the past three months.
Firms in the Richmond Fed’s Fifth District reported a slowdown for the fourth month in a row, after four months of expansion at the start of the year. Indices for shipments and new orders worsened in the survey reported on Aug. 23.
Employment remains expansionary, with a large but shrinking share of firms reporting increasing wages and a labor market lacking sufficient availability of qualified workers.
As in other regions, there were indications of further supply chain relief as indexes for vendor lead times and order backlogs decreased.
Manufacturing activity slowed considerably in the Kansas City Fed’s Tenth District. The overall diffusion index remained slightly positive, but below normal levels. Expectations for future activity eased somewhat but were still solid.
The survey released on Aug. 25 reported the new orders index declining to its lowest level since May 2020, with indexes for production, shipments, order backlogs and inventory materials moderately lower. The employment index remained moderately positive and price indexes fell to their lowest levels in over a year.
One comment seems to summarize perceptions: “Given all the reshoring of supply chains and coming infrastructure projects, workers will be in very short supply, which will contribute to inflation and limit growth in the long term.”
Manufacturing in Texas ticked down in August for the third month in a row of below-normal overall activity and new orders.
In the survey conducted the week of July 16-24, 25% of firms reported increased shipments during the month, while nearly 22% reported decreases. Expectations regarding future manufacturing activity were mixed in August.
Forty-six percent reported increases in prices paid, 43% reported no change and 11% reported decreased prices, suggesting that price pressures were moderating.
In special questions, 58% of firms reported supply chain disruptions, down from 69% last November. Nonetheless, 43% of firms reported improvements over the past month.
And with regard to rising prices, a quarter of the firms reported they were not passing on higher costs to customers.
