The RSM US Manufacturing Outlook Index in November reached its highest level since the spring, indicating a sustained economic recovery should the health crisis not get in the way.
Despite snarled global supply chains, the domestic manufacturing sector continues to steam ahead.
Despite snarled global supply chains that have made obtaining goods challenging, the domestic manufacturing sector continues to steam ahead.
The RSM manufacturing index rarely goes above 2.0 standard deviations, with most of these brief elevated episodes in the period immediately following a recession. This month’s value of more than 1.6 standard deviations above normal suggests an expansionary production sector—with only 10% of the months since 1968 having higher results.
Our index is a composite of surveys of manufacturing activity conducted by five regional Federal Reserve banks. The results in November suggest that manufacturers are finding ways to work within the parameters of longer delivery times, rising prices and inventories that remain too low.
Because of the importance of manufacturing to the downstream economy, the health and prospects of the manufacturing sector are indicative of potential economic activity. The November reports were good news after a summer of supply chain issues.
Manufacturers in the Philadelphia Fed region reported the highest level of activity since the spring—November’s shipments and new orders continued higher—while expecting further growth over the next six months.
Manufacturers in the Philadelphia Fed region reported the highest level of activity since the spring.
Employment remained elevated, with firms expecting a 4% increase in wages during the coming year. And there were widespread price increases, with firms expecting to receive 5% increases in their products.
Manufacturing growth remains strong in New York State. New orders and shipments were substantially higher in the first week of November than in the previous month, and firms planned significant increases in capital and technology spending amid improving conditions over the next six months.
Nevertheless, the report noted that the elevated level of optimism dipped slightly among manufacturers, with longer delivery times and higher prices expected.
Manufacturing growth eased slightly in the Kansas City Tenth District, but expectations remained strong. Firms reported increases in prices paid and delivery delays compared to a month ago and a year ago, with labor shortages a key inhibitor in meeting higher demand for goods.
The survey reported that 63% of firms expected to increase employment over the next 12 months to meet the growth of sales or to alleviate an overworked staff.
More than half of the firms reported they are already at or above their pre-pandemic employment levels, while another third expected to have restored employment levels by the end of 2022.
Factory activity in the Dallas region accelerated during November as new orders and shipments regained ground lost during the summer months. This upswing was confirmed by employment growth, longer workweeks, and by the wages and benefits nearing their series high.
Expectations for manufacturing activity in the Dallas area remained solidly in positive territory.
Manufacturing growth continued in the Richmond Fed area during November, with expansionary conditions reported for new orders, shipments and employment. Slightly lower levels of prices paid and received were also reported. Respondents, however, continued to list low inventory levels and a low availability of qualified labor.
The takeaway
Supply chain disruptions have led to higher prices and longer vendor lead times, while backlogs of orders have continued to grow. But manufacturers remain optimistic that business conditions will improve in the coming months.
