RSM US Manufacturing Outlook Index: Soft sentiment in an uneven recovery

REAL ECONOMY BLOG | February 29, 2024

Authored by RSM US LLP

The slowdown in manufacturing continued into February, but at a slower pace, according to surveys conducted by regional Federal Reserve banks.

Our RSM US Manufacturing Outlook Index stands at 1.2 standard deviations below normal levels of manufacturing activity.

In fact, two of the five regions used in our analysis of regional manufacturing (Philadelphia and Dallas) reported overall positive responses. Three regions (New York, Richmond and Kansas City) reported improvements but remained slightly contractionary.

Our RSM US Manufacturing Outlook Index stands at 1.2 standard deviations below normal levels of manufacturing activity. Positive results in the surveys indicate increased manufacturing activity and negative results indicating decreased activity.

Much of the weakness in sentiment has been the sharp rise in interest rates since 2021.

Nevertheless, in the two years since the onset of rate hikes in March 2022, the number of people on payrolls has increased by roughly 747,000.

This tends to suggest that one needs to pay closer attention to production, new orders and inventories in the soft sentiment data to get a true sense of conditions across the manufacturing sector and overall industrial production.

During normal times, there are monthly ups and downs reported by manufacturing firms. But our index has been negative since May 2022, and significantly so in the majority of those months.

This contractionary trend came as a result of the tightening of monetary policy, followed by this year’s United Auto Workers strike and the ongoing problems at Boeing.

This month’s activity might best be characterized as mixed. While current shipments in February were expansionary in all but the Richmond region, new orders were contractionary in all but the Dallas region.

Nevertheless, the signs of improvement in the February manufacturing surveys add to the potential of a soft landing for the economy, while increased capital expenditure suggests the potential for sustained economic growth.

RSM US Manufacturing Outlook Index

Capex trends in manufacturing

New York

After uncomfortably low levels of manufacturing in the New York region in December and January, activity improved but remained slightly underwater in February. Slightly less than a third of New York firms reported increased activity, while slightly more than a third reported contractions.

New orders declined modestly, while shipments edged higher. Inventories declined and employment levels were little changed.

The pace of input price increases picked up for a second straight month, and the pace of selling price increases also steepened.

Survey responses were collected between Feb. 2 and Feb. 9.

New York manufacturing


Manufacturers reported an increase in activity in the Philadelphia region in February for the time since August and for only the fourth time since May 2022. This month was marked by a surge in new orders and current shipments against a decline in employment.

In the survey collected Feb. 5 to Feb. 12, 27% of firms reported increases in general activity (up from 16% last month), while 22% ported decreases (down from 26%). Forty-five percent reported no change. So, this a modest but welcome increase after too many months of downturn.

Firms reported overall increases in prices paid and prices received, but those results remain below their long-run averages.

There was a substantial increase in reports of capital expenditure in the month.

Philadelphia Fed manufacturing


Manufacturing activity in Texas stabilized in February after January’s sharp contraction.

The new orders index—a key measure of demand—shot up to its first positive reading since May 2022, while capacity utilization and shipments indexes both reached neutral levels.

The employment index rebounded after two negative readings. Eighteen percent of firms indicated net hiring versus 13% indicating net layoffs. The hours worked index remained negative for the fifth month in a row.

In special questions, 38% of respondents noted increased reliance on out-of-state workers, while 41% noted increased reliance on foreign workers.

The survey was collected from Feb. 13 to Feb. 21, with 92 of the 127 Texas manufacturers surveyed submitting a response.

Dallas Fed manufacturing


Manufacturing activity in the Richmond region increased back toward neutral in February but remains slightly negative.

Of the three components that make up the Richmond index, shipments remained solidly negative, new orders increased but remained negative, and employment rose notably and became positive. On a negative note, more firms than not reported a decline in the availability of skilled workers.

The report continued that the average growth rate of prices paid had decreased in February, while the average growth rate of prices received was nearly unchanged.

Results were released on Feb. 27 and were based on responses from 76 to 82 firms.

Richmond Fed manufacturing

Kansas City

Manufacturing activity in Kansas City’s Tenth District declined slightly in February as activity for nondurable goods fell, while activity rose slightly for durable goods. Increases were noted in nonmetallic minerals, electrical equipment and transportation equipment manufacturing.

New orders improved considerably but remained slightly contractionary. The volume of shipments index and the employment index both increased and became positive.

Firms are anticipating increased capital expenditures, with one firm noting its focus on improving efficiencies to offset pricing threats.

The survey was open for a six-day period from Feb. 21 to Feb. 26 and included 89 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

Kansas City Fed manufacturing

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This article was written by Joseph Brusuelas and originally appeared on 2024-02-29.
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