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RSM US Manufacturing Outlook Index: Slowdown continues into April

REAL ECONOMY BLOG | May 01, 2023

Authored by RSM US LLP

April marks a full year of contraction in the manufacturing sector. The RSM US Manufacturing Outlook Index, based on surveys conducted by five regional Federal Reserve banks, continued to signal a downturn in the production of goods during April.

Overall manufacturing activity remains at 1.85 standard deviations below normal, a level consistent with past recessions.

Overall manufacturing activity remains at 1.85 standard deviations below normal, a level consistent with past recessions.

At this point, the strong orders at Boeing have not yet flowed into the manufacturing sector. We expect that to be a story for later this year or next year. For the most part, defense orders are propping up the manufacturing sector. Defense spending through the first three months of the year increased by 5.9% as Washington looks to replenish its stock of weapons. We expect special supplemental defense spending bills linked to U.S. aid to Ukraine to bolster overall manufacturing conditions.

We note that there have consistently been monthly ups and downs among the regions. In April, New York reported a sharp increase in activity that was matched by a decrease in the Philadelphia region.

And while the Dallas Fed reported some improvements, manufacturing in Texas remained contractionary, with a not-insignificant number of firms reporting difficulty in obtaining bank loans.

RSM US Manufacturing Outlook Index

New York

Manufacturing activity in New York state made a dramatic recovery in April, powered by a resurgence in current shipments and new orders. Despite these gains, firms continued to expect little improvement in conditions over the next six months. We would also note that expectations for capital and technology spending over the next six months have been drifting lower.

Both employment and hours worked declined for a third consecutive month. Input price increases continued to moderate, while selling prices grew at the same pace as last month.

The survey was collected during the week of April 3 to April 10.

Empire State manufacturing survey


Manufacturing conditions in the Philadelphia Fed region continued to drop, reaching their lowest point since the 2020 health crisis. Only 3% of manufacturing firms reported gains during the month while 35% of firms reported decreased activity. The survey was collected in the week of April 10 to April 17.

New orders and current shipments showed improvements but remained solidly contractionary. Employment in two-thirds of the firms held steady during the month, with an equal split among firms reporting increased or decreased employment.

Prices paid and prices received declined to their lowest readings since mid-2020. More than 55% of the firms indicated that wages and compensation costs had increased over the past three months, while none of the firms reported decreased wages.

Expectations for future activity remain subdued.

Philadelphia Fed manufacturing survey


Manufacturing activity in Texas was basically unchanged in April compared to March, while perceptions of broader business conditions worsened notably.

There were mixed results within the survey conducted from April 11 to April 19, including improvements in new orders and current shipments, although both remained contractionary.

In the labor market, the number of employees continued to trend lower, with only 20% of firms noting net hiring. The hours worked index turned slightly negative for the first time since late last year.

Firms reported below average increases in raw material prices and a stubbornly elevated reading for wages in April.

In response to special questions, the percentage of firms looking to hire has drifted lower to 52% from 66% last April, with 38% of respondents now seeing an improvement in the availability of applicants.

As for banking, 40% of respondents reported using regional banks as a source of credit, 28% use large national banks and 16% use small community banks.

About two-thirds, or 66%, of firms reported having no difficulty obtaining financing for short-term uses like paying workers and acquiring inventories of materials or supplies. A quarter, or 25%, noted some difficulty in obtaining financing, with 9% having substantial or extreme difficulty. Roughly the same ratios were noted for long-term capital financing.

Dallas Fed manufacturing survey


Manufacturing firms in the Richmond Fed’s Fifth District reported deteriorating business conditions in April. Shipments and new orders both declined while the level of employment moved from negative to zero.

April marks a full year of contraction reported by firms in the Southeast after two years of expansion. And firms continue to note the scarcity of qualified labor.

In terms of the supply chain, inventories of raw materials and finished goods increased, and there were improvements in vendor lead times.

The survey was released on April 25.

Richmond Fed manufacturing survey

Kansas City

Manufacturing activity in the Kansas City Fed’s Tenth District has been decelerating since March of last year. In April, firms reported the steepest drop in new orders since May 2020, but nevertheless remained optimistic.

All month-over-month indexes declined, except for prices, average employee workweek and supplier delivery time. This month, the decline was driven more by nondurable goods plants, especially in printing, plastics, paper and food manufacturing.

In special questions, a majority of firms reported that job openings have stayed the same or changed only slightly from the beginning of the year. Additionally, most firms that have sought financing for desired short-term uses have reported no difficulty obtaining credit.

The April survey was open for a five-day period from April 19 to April 24 and included 97 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

Kansas City Fed manufacturing survey

This article was written by Joseph Brusuelas and originally appeared on 2023-05-01.
2022 RSM US LLP. All rights reserved.

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