Manufacturing continued to pull back in November, with the RSM US Manufacturing Outlook Index remaining at 1.3 standard deviations below the level that would be considered normal.
A turn toward recovery in manufacturing will most likely not occur until the second half of next year.
Although we think that the manufacturing sector has bottomed, any signs of an improvement have abated. A turn toward recovery will most likely not occur until the second half of next year.
Our index is based on the surveys of manufacturing firms conducted by five regional Federal Reserve banks, with positive results indicating increased manufacturing activity and negative results indicating decreased activity. Only the New York region reported increased activity in November.
While the index shows improvement since bottoming out in March, this latest round of surveys reflects the impact of the auto workers strike, higher interest rates and lower capital expenditures, which appears to have returned to neutral after months of expansion.
Revival in goods-producing jobs
Even with the recent pullback in manufacturing activity, employment in the sector has rebounded. Now, there are as many goods-producing jobs in the American economy as in 2008.
Keep in mind that for every manufacturing job, there are 5.2 service-sector jobs, showing the important role that manufacturing plays in economic growth and national security.
Read more of RSM’s insights on manufacturing and the middle market.
We attribute the rising trend in goods-producing employment to government programs that are rebuilding the supply chain and promoting advanced manufacturing.
While the regional surveys indicate a slowing growth rate of manufacturing employment and the number of hours worked, this seems to be the natural moderating outcome after the initial recovery from the pandemic and geopolitical shocks. In addition, manufacturing employment is following the trend seen in the service sector.
New York
Business activity grew modestly in New York State, according to a survey of manufacturers collected between Nov. 2 and Nov. 9. The general business conditions index turned positive, with 33% reporting improved conditions compared with 24% reporting worsened conditions.
Current shipments picked up during the month, but new orders continued to fall slightly. There was a small decline in the number of employees and hours worked. There was also a steep drop in the outlook, with firms no longer expecting conditions to improve over the next six months.
The pace of input price increases moderated slightly, while selling price increases were flat.
In special questions, 33% of manufacturers expected to add workers while 15% expected reductions, In addition, a third said they were not actively hiring, roughly double the rate from last year. More than a quarter, or 28%, of manufacturers said they were raising starting wages to attract new hires for most job categories, which is down from 59% a year ago.
Philadelphia
Manufacturing activity in the Philadelphia region continued to decline, according to a survey collected from Nov. 6 to Nov. 13. Only 12% of firms reported increased activity (down from 26% last month), while 18% of the firms reported decreases (down from 35%).
This is the 16th negative reading in the past 18 months. The only positive readings were in August last year and this year.
The indicator for current shipments turned negative, more than offsetting last month’s increase. New orders remained positive but were low. Price increases were prevalent but decelerated for the third month in a row.
The employment index suggests steady employment overall, although the average work week index fell further.
Kansas City
Factory activity in the Kansas City region declined again in November, with firms expecting a decline in employment levels over the next six months.
The new orders index moved higher, but only to neutral. Firms now expect a decline in capital expenditure for the first time since February.
In special questions regarding hiring plans, over 63% of firms mentioned the difficulty in finding workers with required skills as the top reason for restrained hiring plans. This was followed by 49% of firms reporting the need to keep operating costs low and 39% reporting high labor costs.
Comments include that the cost of capital is a major driver for customers, with higher interest rates expected to have a modest impact on growth and activity in the short term.
The survey was conducted from Nov. 8 to Nov. 13 and included 106 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.
Dallas
Factory activity in Texas contracted in November after two months of expansion. The production index, a key measure of state manufacturing conditions, plunged, while perceptions of broader business conditions continued to worsen.
The new orders index dropped again and has been negative for 18 months. The capacity utilization index returned to negative territory, and current shipments index slipped further.
Firms reported below-average employment growth and shorter work weeks in November. Nearly a quarter, or 22%, of firms noted net hiring, while 17% reported net layoffs. Wage growth normalized, while material cost growth remained below average and selling prices fell.
In special questions, 38% of firms expected an increase in demand compared with the 29% that expected a decrease primarily because of changes in economic conditions. Roughly a quarter reported increased operating margins over the past six months, compared with roughly half that reported lower margins.
The survey was collected from Nov. 13 to Nov. 21, with 92 Texas manufacturers responding.
Richmond
Manufacturing activity in the Richmond region slowed in November, with a plunge in current shipments, a further moderation in new orders and a drop in employment after two months of increases.
The average growth rate of prices paid was more or less flat in November, while the average growth rate of prices received edged down.
Firms are not optimistic about local business conditions, with sharp drops in the past two months.
The survey was released on Nov. 28 and was based on responses from 88 to 94 firms in the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and West Virginia.
