Fed Reports Offer Mixed Picture of US Manufacturing

Workers assemble cars at a Ford plant in Chicago on June 24, 2019. Jim Young/AFP via Getty Images

Texas manufacturing contracted in September for the 28th straight month, according to a recent survey by the Federal Reserve Bank of Dallas, one of several regional reports that gave a mixed picture of the nation’s factories.

The Federal Reserve Bank of Dallas Manufacturing Index was negative 9.0 in September, up from negative 9.7 in August. This was worse than the consensus estimate of negative 4.5.

According to the regional central bank survey, which targeted business executives in manufacturing in Texas, new orders, production, and capacity utilization tumbled, highlighting persistent lackluster momentum for the wider manufacturing industry. Employment rebounded after the August decline.

Increases in input and output costs also slowed.

Expectations for manufacturing activity in six months improved, with the future production index rising to its best level since early 2022. The optimism was fueled by the Federal Reserve cutting interest rates.

“I feel better about the overall direction of the economy,” a respondent in food manufacturing told the regional central bank.

“Interest rates coming down is having a positive impact on capital expenditure and interest payments,” a food manufacturer said in the survey.

The outcome of the November election was also top of mind for survey participants.

A respondent in the computer and electronic product manufacturing sector was concerned that industries in the green economy will be favored at the expense of others.

“We look at the possibility of a Harris administration with great concern. It will almost certainly lead to a reduction in our general business activity,” the person stated. “We sell into many industries, so while ‘green’ industries will be favored, we expect others (e.g., oil and gas) to be politically disfavored, leading to reduced investment.”

One respondent in transportation equipment manufacturing concluded that “the outlook is totally controlled by the November election.”

Regional Manufacturing Stalling

Various regional central banks’ manufacturing indexes have revealed a sector in contraction or stagnation.

The September manufacturing index of the Richmond, Virginia, Federal Reserve Bank weakened for the 11th consecutive month and suffered the sharpest decline since May 2020. Local business conditions, shipments, and employment slumped. The average growth rate of prices paid surged.

Despite future indexes slipping in September, they remained in positive territory as companies anticipate better conditions in the next six months.

The Kansas City Fed Manufacturing Production Index contracted for the 10th time in 2024, marking a 14-month low in September.

A worker handles 155 mm shells after the manufacturing process at the Scranton Army Ammunition Plant in Scranton, Pa., on April 16, 2024. Charly Triballeau/AFP via Getty Images

Factory activity slumped to its lowest level since September 2020 after steep declines in output and new orders. Employment levels dipped.

A survey respondent in the manufacturing industry told the bank that August was the “worst August in 20-plus years,” adding that “September will be the same.”

“We continue to believe that domestic industrial manufacturing is, and has been, in a recession for quite some time,“ another survey respondent said. ”It appears to be hitting harder than it has, as shown by lower orders and fewer opportunities. Foreign dumping of product continues to be unfair and rampant.”

For the first time since November 2023, the New York Fed’s Empire State Manufacturing Index surged to its highest level since April 2022, surprising market watchers.

Business activity grew, driven by new orders and shipments. On the inflation front, increases in input and selling prices were little changed. Labor market conditions softened in September.

Overall, firms were optimistic about business conditions in the coming months.

The Philadelphia Fed Manufacturing Index recovered from negative 7 in August and rose to positive territory in September. The Manufacturing Business Outlook Survey was more mixed than the headline number suggested.

General activity expanded, and new orders and shipments declined. Employment levels improved, and price indexes surged.

Reviving the Sector

The federal government has invested billions of dollars through the Inflation Reduction Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law to revive the domestic manufacturing sector.

Data show that the trifecta of legislation has initiated, as Apollo Global Management chief economist Torsten Slok says, “an industrial renaissance.”

Indeed, in recent years, private investment in building construction has surged, and U.S. manufacturing capacity has steadily climbed.

These developments have yet to lead to a manufacturing boom.

The Institute for Supply Management’s (ISM’s) Manufacturing Purchasing Managers’ Index (PMI)—a gauge of the sector’s prevailing direction—has contracted for five straight months and is expected to contract again in the Oct. 1 reading.

Likewise, the S&P Global Manufacturing PMI weakened for the third straight month in September.

“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a report earlier this month. “Forward-looking indicators suggest this drag could intensify in the coming months.”

Manufacturing employment has also flatlined.

After all the jobs lost to the pandemic were recovered in early 2022, employment growth has stalled, and payrolls declined by 24,000 in August.

Last week, Democratic presidential nominee Vice President Kamala Harris outlined her $100 billion manufacturing plan, including tax credits to bolster investment and create manufacturing jobs.

“This plan will cost approximately $100 billion and will be paid for by a portion of the proceeds of international tax reform, which seeks to prevent a global race to the bottom and to discourage inversions, outsourcing, or international tax strategies designed by corporations to avoid paying their fair share to the United States,” the Harris campaign stated in a fact sheet.

Appearing at a campaign event in Warren, Mich., former President Donald Trump pledged to “reclaim America’s manufacturing power” by offering companies low tax rates, energy costs, and regulations.

“I want German car companies to be American car companies. I want them to build their cars in this country, not in Germany,” the Republican presidential nominee told the crowd. “I want Asian electronics companies to become Michigan electronics companies.