Factory Activity Shrinks, Employment Index Falls Into Recession Territory for First Time Since Pandemic

The body of a Tesla Model S is transported by an automated crane at the Tesla factory in Fremont, Calif., on Oct. 1, 2011. Stephen Lam/Reuters

A regional index of manufacturing activity in the fifth district showed a decline for the second straight month, according to a recent report by the Federal Reserve Bank of Richmond, indicating economic recession in the overall economy.

“The composite manufacturing index remained negative but edged up from -10 in October to -9 in November,” said the Richmond Manufacturing Index (pdf) published on Nov. 22. “Of its three component indexes, the indexes for shipments and employment deteriorated slightly, edging downward to -8 and -1, respectively. The third component index, volume of new orders, however, showed some improvement, increasing from -22 to -14 in November.”

The index is a monthly economic indicator that focuses on manufacturing activity in the Middle Atlantic states, and also measures sentiment and expectations among private sector executives. Regions covered are Maryland, North Carolina, the District of Columbia, Virginia, most of West Virginia, and South Carolina, and results are compiled from a survey of about 100 manufacturers.

This is the first time since the pandemic that the index dipped into negative territory. The Manufacturing Index was already at a low level in September, with a reading of 0. In the latest report, the wage index notably went down from 34 to 25, while “local business conditions index rose from -16 in October to -6 in November.”

In a recent op-ed at Bloomberg, economist Mohamed El-Erian blamed the Federal Reserve for having “badly misdiagnosed” inflation last year. As it plays catch-up, the central bank’s actions risk pushing the American economy into a recession, putting millions of people “out of work” and exacerbating income inequality.

Persistent Supply-Chain Issues

Supply-chain issues have adversely impacted businesses across the country and dampened post–pandemic growth. The report shows a slight improvement from last month regarding supply constraints, but it still remains at elevated levels.

Vendor lead times improved slightly from October’s -15 to -10 in November, while the backlog of orders went up from -28 to -25.

The volume of new orders increased, from -22 to -14. It was -11 in September. Capital expenditures reduced from 18 to 8, a fall from September’s 22, indicating business pessimism. Shipments went down, from -3 to -8. The index measuring the number of employees within the manufacturing sector went down, from 0 to -1.

“The average growth rate of prices paid decreased in November, while the average growth rate of prices received increased somewhat. Expectations for prices paid over the next 12 months decreased slightly since last month, while expectations for prices received increased slightly. Both remained at levels much lower than current price trends,” said the report.

The possibility that the United States might slip into a recession has strengthened with the Conference Board Leading Economic Index (LEI) remaining in the red in October.

“The downturn in the LEI reflects consumers’ worsening outlook amid high inflation and rising interest rates, as well as declining prospects for housing construction and manufacturing,” said Ataman Ozyildirim, senior director, economics, at The Conference Board.