Photographer: Matthew Busch/Bloomberg

From Rockies to Richmond, Factory Optimism Booms in Fed Surveys

  • Expectations jump for orders, employment across four regions
  • Sentiment rising on heels of increase in equipment spending

What a difference three months has made across America’s manufacturing landscape.

Factories are brimming with confidence, marking an abrupt shift from a more than year-long slide tied to a collapse in oil prices, elevated inventories and tenuous global demand. Those developments have largely played out at about the same time President Donald Trump and a Republican-controlled Congress start hammering out legislation to lower corporate taxes and reduce regulations. 

Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC, says it’s mostly a product of fading disinflationary pressures and easier financial conditions. To get a sense of what’s going on at the nation’s producers, we turn to the latest regional manufacturing surveys from Federal Reserve banks.

Read here about the forces surrounding the Fed’s meeting this week

First, this is how the playing field sets up for capital spending on machinery and other types of equipment. Up until the end of the year, it was pretty dismal in 2016. While some headwinds remain, factory managers have grown decidedly upbeat:

The pickup in fourth-quarter investment has given producers from the East Coast to Texas reason to expect demand will continue to firm. Sure, firmer oil and gas prices are behind some of the optimism in Dallas and Kansas City, whose district extends west to Wyoming, Colorado and northern New Mexico. But improvement in other regions of the country indicate something more favorable is occurring for manufacturers nationwide.

It’s not just expectations that are improving. More manufacturers in these Fed districts have reported increased bookings over the past three months. The Philadelphia Fed’s factory orders gauge jumped in January to the second-highest level since March 2011. In the Dallas Fed region, demand was the strongest since April 2014. The three-month point swing in orders at factories in the Richmond, Virginia, region matched the second-largest since mid-2009, when the economy was pulling free of the recession.

Kansas City20559

And all of this bodes well for job prospects for assembly-line workers. Gauges of the six-month employment outlook are soaring. The nation lost 45,000 factory positions in 2016, the first annual drop in seven years. A gauge of manufacturing job prospects in the Philadelphia Fed region advanced to the highest level since February 1984, while in the index for the Richmond area was the strongest since the survey began in November 1993.

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