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RSM US Manufacturing Outlook Index: Financing costs and UAW strike take toll

REAL ECONOMY BLOG | October 30, 2023

Authored by RSM US LLP

Rising yields and the strike by the United Auto Workers contributed to a pullback in manufacturing in the United States into October, with the RSM US Manufacturing Outlook Index slipping to 1.3 standard deviations below normal.

Manufacturing firms in four of the five regions surveyed by regional Federal Reserve banks reported outright declines in new orders.

Although it appears the end of the UAW strike is at hand pending votes by union members, rising financing costs, which hinder investments in productivity and other initiatives, will almost certainly dampen what we think will be a near-term recovery in the manufacturing sector.

There were mixed results in the most recent RSM index. Manufacturing firms in four of the five regions surveyed by Federal Reserve banks reported outright declines in new orders, while firms in the Philadelphia region reported a softening.

On the positive side, firms continued to report increases in employment, with only the Kansas City region reporting a decrease in the number of employees.

As always, we note the monthly ups and downs reported by manufacturing firms. But this recent setback might best be attributed to the effect of the strikes by the United Auto Workers against the Big Three domestic automakers.

In the long-term, there has been a declining trend in capital expenditures and spending on equipment and software that could affect the competitiveness of U.S. manufacturing.

We expect that trend to continue, perhaps as long as monetary policy stays restrictive, borrowing costs remain at or near current levels and geopolitical risk remains uncertain.

RSM US Manufacturing Outlook Index

New York

Manufacturing activity in New York State declined slightly in October, with 24% of respondents reporting that conditions had improved over the month against 29% reporting that conditions had worsened.

There was a small decline in new orders and inventories while shipments were little changed.

Nevertheless, firms reported slight gains in the number of employees and hours worked and a deceleration of input price increases. Survey responses were collected from Oct. 2 to 10.

Empire State manufacturing survey


Manufacturing activity in the Philadelphia Fed region was mixed in October. The overall index has been negative throughout the year, with August the only exception. While firms continue to expect growth over the next six months, most future indicators declined.

New orders were positive but low and the employment index turned positive after eight months of decline. Firms continued to expect overall increases in employment over the next six months.

Read more of RSM’s insights on manufacturing and the middle market.

Both prices paid and received increased and remained elevated.

The future capital expenditures index fell for the fourth month this year, offsetting its increase from last month. Nearly 30% of respondents expected less spending than last year, but that was dragged lower by reduced outlays on structures.

When questioned about spending on software, 35% expected to spend more on software than last year compared with only 19% expecting to spend less. The survey was collected from Oct. 9 to 17.

Philadelphia Fed manufacturing survey


After 16 months of decline, manufacturing activity in Richmond’s Fifth District increased for the second month in October.

But there was little overall change since September’s modest gains. While shipments edged up and employment growth held steady, new orders fell.

In addition, firms were not optimistic about business conditions. Sentiment fell from neutral in September to negative in October, with concerns for further declines over the next six months.

With regard to the labor market, firms expect the number of employees to continue growing and for wage pressure to increase in the coming months. Firms also expressed improvements in the skill set of the labor market.

The survey was released on Oct. 24 and was based on responses from 78 to 81 firms in the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia.

Richmond Fed manufacturing survey

Kansas City

Manufacturing activity in the Kansas City region continued to decline, and new orders fell substantially. Of note, durable goods manufacturing declined more than nondurable goods, while the number of employees decreased after three months of gains.

Firms reported that raw material prices declined slightly for the first time since 2020. Nevertheless, firms expect the prices of both finished products and raw materials to increase moderately in the next six months.

Inventories were drawn down in the month with expectations for further declines.

In special questions, a substantial percentage of firms reported increased training of skills, while only 20% of firms expected the end of child care benefits to reduce their ability to hire. The survey was conducted from Oct. 18 to 23.

Kansas City Fed manufacturing survey


There was a modest expansion of output in the Dallas region after four months of decline.

There were mixed signals this month, however. New orders were negative for the 17th consecutive month while the shipments index remained near zero and employment growth decelerated. The raw materials price index dropped to a reading well below average.

Perceptions of broader business conditions continued to worsen in October and uncertainty remained elevated. The survey was collected from Oct. 17 to 25, with 94 Texas manufacturers responding.

Dallas Fed manufacturing survey

This article was written by Joseph Brusuelas and originally appeared on 2023-10-30.
2022 RSM US LLP. All rights reserved.

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