U.S. Manufacturing Activity Declines

(Reuters) – A gauge of manufacturing activity in the U.S. Mid-Atlantic region slid to the lowest in nearly two years in December, with new orders and shipments both contracting, indicating that the factory sector remains in a slump.

The Federal Reserve Bank of Philadelphia reported on Thursday that its monthly manufacturing index fell for a second straight month to negative 16.4, the lowest since April 2023, down from negative 5.5 in November. The median forecast among economists polled by Reuters expected a reading of positive 3.0. Negative readings indicate a contraction in activity.

The new orders index tumbled to negative 4.3, the lowest since May, from plus 8.9 in November.

While factory managers remained optimistic about prospects in six months’ time, their growth outlooks softened from a three-year high in November.

This report from the Philly Fed suggests that the factory sector, which accounts for just over 10% of the economy, continues to struggle to find its footing following the Federal Reserve’s interest rate hikes in 2022 and 2023. Although the Fed shifted to rate cuts in the latter half of this year, further easing is not expected, and market-based measures of borrowing costs remain significantly higher than early 2022, continuing to pressure investment.

On Tuesday, the Fed reported that manufacturing output in November rebounded less than expected from the previous month, with production declining 1.0% year-on-year.

The outlook is further clouded by President-elect Donald Trump’s ambition for hefty new tariffs on imported goods, which could trigger counter levies on American exports by U.S. trading partners.

(This story has been corrected to remove the word ‘unexpectedly’ in paragraph 2.)