The RSM US Manufacturing Outlook Index dropped by two standard deviations below normal in May as firms reported decreases in both current shipments and new orders. This is consistent with the modest year-over-year decline in industrial production.
Our index is based on surveys of manufacturing firms conducted by five regional Federal Reserve banks. Its current reading of manufacturing activity is consistent with recessions in past business cycles.
We note the usual ups and downs in activity reported by manufacturing firms and we expect increased military and infrastructure spending to have a positive effect.
Still, the combination of monetary policy tightening and geopolitical pressures on energy prices and demand among our trading partners has taken its toll on the U.S. manufacturing sector over the past year.
New York
Business activity fell sharply in New York State, reversing last month’s gains, according to the survey conducted by the New York Fed during the week of May 2 to 9.
New orders and shipments plunged and capital spending plans turned sluggish. Both employment and hours worked edged lower for a fourth consecutive month.
Delivery times shortened and inventories contracted as prices increased at about the same pace as last month.
Seventeen percent of respondents reported that conditions had improved over the month, while 49% reported that conditions had worsened.
Philadelphia
Manufacturing activity in the Philadelphia Fed region continued to decline, according to the survey conducted from May 8 to 15. Although there were improvements in new orders and shipments compared to April, both remained negative in May.
Firms reported declines in employment for the third month in a row while price indexes remained below long-run averages,
Richmond
Manufacturing conditions in the Richmond region deteriorated further in May as current shipments declined for the second month. Firms have reported declines in new orders for 14 consecutive months.
The survey has reported worsening local business conditions throughout last year and this year, with pessimism now extending into the next six months.
Employment rose slightly during the month as higher wage pressures continue. Vendor lead time continues to moderate.
More than 70 firms responded to the survey, which was released on May 23.
Kansas City
Manufacturing activity was flat in the Kansas City Fed’s Tenth District, with increased activity reported in both durable and nondurable goods compared to April. Gains were noted in paper, primary metal and miscellaneous durable goods manufacturing.
Current shipments fell slightly compared to April while new orders have been falling for the past 12 months.
Firms reported a general increase in employment, but comments suggest the difficulty in staffing. Responses included that it is “still a grind to find entry level employees” and that “labor availability is becoming slightly better, quality is not good.”
The survey was conducted from May 17 to 22.
Dallas
Manufacturing activity in Texas was essentially flat, decreasing slightly in May and reversing April’s slight increase. New manufacturing orders have declined for 12 consecutive months, while perceptions of broader business conditions dropped to the lowest reading in three years.
Labor market measures suggest continued employment growth, as 23% of firms noted net hiring and 13% noted net layoffs. The hours worked index inched up.
In special questions, respondents expect wages to increase by 5.3% this year. There have been notable drops in price pressures, with input prices expected to increase by 4.7% and selling prices expected to increase by 3.8%.
The survey was conducted from May 16 to 24.
