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RSM US Manufacturing Outlook Index: Signs of a bottom

REAL ECONOMY BLOG | August 29, 2023

Authored by RSM US LLP

The decline in the RSM US Manufacturing Outlook Index appears to be nearing a bottom. We think that the mild recession in the manufacturing sector is approaching its end. The nascent manufacturing construction boom will soon translate into robust new orders and we think that a policy-induced tailwind will support overall manufacturing activity for at least the next three years.

Only two of the five manufacturing centers surveyed by regional Federal Reserve banks, New York and Dallas, reported substantial declines The Philadelphia and Kansas City regions reported substantial increases, while Richmond had a slight increase.

Our composite index now indicates that the trough in activity in this cycle occurred this spring. Although still early, the pattern of the past three months includes two higher highs and one higher low, suggesting the potential reversal of the downtrend in manufacturing since its peak in July 2021.

As always, we note the usual ups and downs in current activity reported by manufacturing firms and therefore the difficulty of pinpointing turning points. And we note that only the Philadelphia region reported an increase in new orders.

Nevertheless, we expect increased military and infrastructure spending to have a positive effect, spurred on by the government’s industrial policy to promote domestic semiconductor manufacturing.

RSM US Manufacturing Outlook Index

New York

Business activity declined in New York State during the month leading up to Aug. 2 to Aug. 9. Sixteen percent of respondents reported that conditions had improved, while 35% reported that conditions had worsened.

Of note, new orders and current shipments reversed the gains reported in June and July, while employment slipped into a slight decline with a shorter work week.

Firms, though, grew more optimistic about the six-month outlook, and capital spending plans firmed up.

New York manufacturing


Manufacturing activity in the Philadelphia region expanded in the month leading up to Aug. 7-14. The survey’s indicators for general activity, new orders and shipments, were all positive for the first time since May 2022.

Almost 25% of the firms reported increases in activity, 13% reported decreases and 58% reported no change.

Still, firms reported a decline in employment for the sixth month in a row.

Philadelphia manufacturing


Manufacturing activity in the Fifth District remained sluggish in August. According to the survey released on Aug. 22, the composite manufacturing index edged up but remained negative. Two of its three component indexes, shipments and new orders, improved while remaining negative. The third component index, the employment index, fell from slightly positive in July to slightly negative in August.

The index for capital expenditures remained positive but close to neutral, while expectations for expenditures continued its modest uptrend.

Richmond manufacturing

Kansas City

Manufacturing activity in the Kansas City region was unchanged in August compared to July, while decreasing further on a year-over-year basis.

The month-over-month component indexes were mixed. There were notable increases in printing, wood production and furniture manufacturing along with a significant increase in the volume of shipments. But the number of employees cooled slightly, and new orders for exports declined further. While finished product prices continued to decline on a monthly basis, raw material prices increased.

The materials inventory index continued to decrease while finished goods inventories picked up.

The survey also reported cooling in capital expenditures growth.

In special questions, 15% of firms said wages had risen more than 10% in the last year, 44% of firms reported increases of 6% to 10%, while 34% reported an increase of less than 5%.

Comments on the labor market included:

“You don’t dare pare down or lay off on your skilled labor because you won’t ever get them back.”

“American manufacturers are being forced into a much more difficult position competitively with huge labor cost increases against foreign competitors.”

“The quality of the available workforce is still a challenge.”

The survey was released on Aug. 24.

Kansas City manufacturing


Factory activity in Texas contracted again in August as the production index, a key measure of state manufacturing conditions and current shipments, fell to its lowest level since May 2020.

The new orders index has been in negative territory for more than a year but was up slightly from July. The capacity utilization index edged down, while labor market measures suggest slower growth in employment and shorter work weeks in August against an increase in wages and benefits.

The capital expenditures index dropped to a three-year low.

Survey data was collected from Aug. 15 to Aug. 23, with responses from 88 Texas manufacturers.

Dallas manufacturing

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This article was written by Joseph Brusuelas and originally appeared on 2023-08-29.
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