Optimism in the American manufacturing community is poised to continue in the new year, though with some caution attached. It is clear that the risks around the pandemic are rising and we may observe volatility in manufacturing indices until the bottlenecks around vaccine distribution are solved.
The proprietary RSM US Manufacturing Outlook Index has been positive for the five months since August, but not significantly so. It may be some time before we observe robust readings in manufacturing sentiment.
In past economic downturns, manufacturing sentiment receded as the recession continued, something that could be expected. In this recession, manufacturing sentiment plunged when the coronavirus shut the economy down, but then revived even as infections and deaths accelerated and job layoffs continued.
The moderation of confidence is most likely the result of both manufacturing sales and durable goods orders remaining lower than historical standards. Given the importance of manufacturing to overall economic activity, that speaks to the need for a stimulus program to accelerate growth of the manufacturing sector.
The RSM index of manufacturing sentiment is based on surveys conducted by the regional Federal Reserve banks.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.