US Manufacturing Still Stalled, Fed Data Reveals

December 20, 2024 TruthUSA

Approximately 33 percent of the companies surveyed indicated a decline in general activity during December, an increase from 23 percent in the preceding month.

The manufacturing sector in the U.S. continues to encounter considerable hurdles, as recent statistics from regional Federal Reserve banks alongside national industrial production measures suggest a troubling scenario for American factories.

According to data issued on December 19, the Federal Reserve Bank of Philadelphia’s manufacturing index saw a steep drop in December, hitting its lowest point in nearly two years. The index decreased to -16.4 from -5.5 in November and marked the lowest level since April 2023, falling short of economists’ predictions for a positive reading of 3.0.

Negative index values indicate contraction, and the Philadelphia Fed data reflects reductions in both new orders (-4.3) and shipments (-1.9). Nearly 33 percent of firms surveyed indicated declines in general activity in December, rising from 23 percent the prior month.

Despite this downturn, manufacturers exhibited cautious optimism regarding future growth, even though the six-month outlook has softened relative to the three-year high recorded in November. The employment index experienced a slight decrease, yet still indicated increases in overall hiring.

The December survey from the Kansas City Federal Reserve also revealed a reduction in manufacturing activity within the 10th District, though the decline was more modest compared to the Third District highlighted in the Philadelphia Fed report. Most indices from the Kansas Fed were negative, as the overall activity index fell to -4 in December from -2 in November. The production index plunged deeper into negative territory, while new orders dropped considerably from -9 to -17.

Nonetheless, similar to the Third District, future activity expectations improved in the 10th District, with employment rising slightly to a reading of 3, suggesting some hiring was indeed taking place.

National industrial production data from the Federal Reserve underscored persistent difficulties in manufacturing. Output in November saw a slight recovery from October yet still represented a 1.0 percent decline year-over-year.

While the U.S. manufacturing sector remains entrenched in challenges, the services sector has emerged as a source of strength. According to S&P Global’s latest survey, output in the services industry reached its highest level in 38 months during December.

“Business is thriving in the U.S. services economy, with output increasing at the fastest rate since the economy reopened following COVID restrictions in 2021,” stated Chris Williamson, chief business economist at S&P Global. “However, the scenario in manufacturing paints a different picture, where output is sharply declining at an escalating pace.”

Despite the obstacles in manufacturing, the overall U.S. economy posted an annualized growth rate of 3.1 percent for the third quarter of 2024, as indicated by data released by the Bureau of Economic Analysis (BEA) on December 19. This figure reflects an upward revision from the initial 2.8 percent estimate, fueled by strong consumer expenditure, which surged at its fastest rate in 18 months during the third quarter.

Despite the rapid growth in consumer spending since the 4.9 percent recorded in the first quarter of 2023, some analysts argue that still-high inflation continues to exert pressure on lower-income consumers.

“The consumer landscape is divided, as high-income households are benefiting from a robust labor market, rising housing values, and stock market gains,” remarked Ryan Sweet, chief economist at Oxford Economics.

“Conversely, lower-income households remain under significant financial strain, and this situation is unlikely to change next year, as it will take considerable time for them to adapt to the inflationary pressures they have already encountered,” he added.

On another note, data published on December 19 indicated a decrease in the number of Americans filing new applications for jobless benefits, which was greater than anticipated, suggesting ongoing resilience in the labor market despite persistent weaknesses in certain economic sectors.

During a press conference on December 18, Federal Reserve Chair Jerome Powell commented that the “downside risks of the labor market appear to have diminished,” describing the U.S. economy as “remarkable.”

This statement echoed the Atlanta Fed’s announcement on December 18, having upgraded its real-time GDP forecast for the fourth quarter to 3.2 percent from a prior estimate of 3.1 percent, attributing the growth to a rise in residential housing investments.

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