The U.S. manufacturing sector continues to face significant challenges, as recent data from regional Federal Reserve banks and national industrial production indicators paint a bleak picture of America’s factories.
The Federal Reserve Bank of Philadelphia’s manufacturing index declined sharply in December, marking the lowest level in nearly two years, according to data released on Dec. 19. The index fell to -16.4, down from -5.5 in November and the lowest since April 2023. It also missed economists’ expectations for a positive reading of 3.0.
Negative values signal contraction, with the Philadelphia Fed data showing declines in both new orders (-4.3) and shipments (-1.9). Nearly 33 percent of firms surveyed reported decreases in general activity in December, up from 23 percent in the prior month.
Despite the downturn, manufacturers remained cautiously optimistic about future growth, although the six-month outlook has softened compared with November’s three-year high. The employment index inched down, although it continued to suggest increases in overall hiring.
The Kansas City Federal Reserve’s December survey similarly indicated a decline in manufacturing activity in the 10th District, although the drop was more modest than in the Third District covered by the Philadelphia Fed report. Most of the Kansas Fed’s indexes were negative, with the overall activity index dropping to -4 in December from -2 in November. The production index fell deeper into negative territory, while new orders plunged from -9 to -17.
However, as in the Third District, expectations for future activity accelerated in the 10th District, while employment rose slightly to a reading of 3, suggesting some hiring was taking place.
Nationally, industrial production data from the Federal Reserve highlighted ongoing struggles in manufacturing. Output in November rebounded slightly from October but remained 1.0 percent lower year-over-year.
While U.S. manufacturing remains mired in weakness, the service sector has been a bright spot. Output in the services reached a 38-month high in December, according to S&P Global’s latest survey.
“Business is booming in the U.S. services economy, where output is growing at the sharpest rate since the reopening of the economy from COVID lockdowns in 2021,” Chris Williamson, chief business economist at S&P Global, said in a statement. “It’s a different picture in manufacturing, however, where output is falling sharply and at an increased rate.”
Despite challenges in manufacturing, the overall U.S. economy expanded at an annualized rate of 3.1 percent in the third quarter of 2024, according to data released on Dec. 19 by the Bureau of Economic Analysis (BEA). This represents an upward revision from the initial 2.8 percent estimate, driven by robust consumer spending, which grew at its fastest pace in 18 months in the third quarter.
Despite the fastest pace of consumer spending growth since the 4.9 percent notched in the first quarter of 2023, some analysts said still-elevated inflation means lower-income consumers continue to feel strain.
“It’s a bifurcated consumer as high-income households are reaping the benefits of a tight labor market, increases in housing, and stock market wealth,” said Ryan Sweet, chief economist at Oxford Economics.
“Lower-income households remain under financial pressure and, unfortunately, this won’t change next year as it will take time for them to adjust to the past inflation shock,” he added.
Meanwhile, other data released on Dec. 19 showed that the number of Americans filing new applications for jobless benefits fell more than expected last week, suggesting continued labor market resilience despite ongoing weakness in some sectors of the economy.
Federal Reserve Chair Jerome Powell told reporters at a press conference on Dec. 18 that the “downside risks of the labor market do appear to have diminished,” while describing the U.S. economy as “remarkable.”
That came as the Atlanta Fed on Dec. 18 raised its real-time GDP estimate for the fourth quarter to 3.2 percent from an earlier projection for a 3.1 percent pace of growth, citing increased growth in residential housing investment.
From The Epoch Times