Manufacturers across much of the United States reported slowing activity in June, according to surveys by regional Federal Reserve banks. The RSM US Manufacturing Outlook Index remained 1.7 standard deviations below normal, the 14th consecutive month of negative values.
The RSM US Manufacturing Outlook Index remained 1.7 standard deviations below normal in June, the 14th consecutive month of negative values.
Our index is based on the five surveys of manufacturing firms by regional Fed banks. Our current reading of manufacturing activity is consistent with recessions in past business cycles.
The modest decline in manufacturing activity may be short-lived, though. It is occurring just as semiconductor makers, bolstered by federal money, are ramping up to expand their production of chips, which implies a rebound in the near to medium term. Also at play is a surge in federal funding for infrastructure projects and the military that will counter a slowdown.
But for now, there is a pullback. Slowing activity in manufacturing has in recent months been joined by the decline in residential construction, tighter financial conditions, a rising cost of credit and early signs of softening in what has otherwise been a robust labor market.
While the overall economy continues to grow, this confluence of factors is causing the economy to slow. Should there be another exogenous shock, the consumer sector falter or the cumulative impact of financial tightening by the Fed further hurt business investment, the economy will slip into recession.
In addition to the usual ups and downs in current activity, new orders continue their steady decline and employment is showing a new softness.
New York
Manufacturing activity improved modestly in New York state in the survey that was conducted from June 2 to 9. This improvement comes after a plunge in the previous survey. Nearly a third of respondents, or 31%, reported that conditions had improved over the month, while 24% reported that conditions had worsened.
New orders also improved modestly compared to the previous month, while current shipments made a dramatic increase.
Employment was down for the fifth consecutive month, however, which comes after nearly three years of employment gains. Expectations for capital spending have decelerated all year and remained soft in June.
Philadelphia
Manufacturing activity in the Philadelphia Fed region continued to decline for the 10th consecutive month, according to the survey conducted in the second week of June. The survey’s indicator for new orders has been negative for 13 straight months, although the index for current shipments turned positive after three months of decline.
The employment index suggests employment has steadied after declines in March and May.
Price indexes remained below long-run averages, with 22% of the firms reporting increases in input prices, 12% reporting decreases and 66% reporting no change.
In special questions, most firms reported labor supply and supply chains as slight or moderate constraints to capacity utilization. Still, 22% of the firms pointed to labor and 16% pointed to supply chains as significant constraints.
Kansas City
Manufacturing activity in the Kansas City region continued to decline in June as monthly price and employment indexes plunged.
The decrease in activity from last month was driven by both durable and nondurable goods, especially by primary metals and print manufacturing. Indices for production, volume of shipments, supplier delivery time and inventories all declined at faster rates than in the prior month.
In special questions, about 43% of firms reported that they had stopped posting new positions and had reduced the number of hours for hired workers over the past three months. Additionally, 40% of district firms expected demand for their products to be lower for the remainder of the year.
Manufacturers reported that the cost of money was delaying progress on plant expansion and that higher interest rates were squeezing incremental capital spending.
The survey was conducted from June 14 to 20 and included 87 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.
Dallas
Texas factory activity declined in June as the production index fell to a reading indicative of a slight contraction in output for the second month in a row.
The new orders index has been negative for 13 consecutive months, while the growth rate of orders inched down to its lowest value since mid-2020. The capacity utilization index edged down while the shipments index plunged.
Labor market measures suggest weaker employment growth and declining work hours; 17% of firms noted net hiring while 15% reported net layoffs.
The survey was conducted from June 13 to 21, with 85 Texas manufacturers participating.
Richmond
The Richmond Fed characterized manufacturing activity in its region as relatively flat in June. This reading comes on modest improvements in otherwise negative readings of shipments and new orders and further declines in employment.
Local business conditions in the Richmond region have been negative for the past 20 months but showed a notable improvement in June.
The average growth rate of prices paid decreased somewhat, while the average growth rate of prices received decreased.
Results were released on June 27 and were based on responses from 68 to 75 firms.
