Manufacturing firms in four of the five regions surveyed by regional Federal Reserve banks reported outright declines in new orders.
Although it appears the end of the UAW strike is at hand pending votes by union members, rising financing costs, which hinder investments in productivity and other initiatives, will almost certainly dampen what we think will be a near-term recovery in the manufacturing sector. There were mixed results in the most recent RSM index. Manufacturing firms in four of the five regions surveyed by Federal Reserve banks reported outright declines in new orders, while firms in the Philadelphia region reported a softening. On the positive side, firms continued to report increases in employment, with only the Kansas City region reporting a decrease in the number of employees. As always, we note the monthly ups and downs reported by manufacturing firms. But this recent setback might best be attributed to the effect of the strikes by the United Auto Workers against the Big Three domestic automakers. In the long-term, there has been a declining trend in capital expenditures and spending on equipment and software that could affect the competitiveness of U.S. manufacturing. We expect that trend to continue, perhaps as long as monetary policy stays restrictive, borrowing costs remain at or near current levels and geopolitical risk remains uncertain.