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Coming off a slump in 2023, manufacturers expect a modest rebound in the year ahead

2023 Manufacturing survey

February 2, 2024


Joe Mahon Director, Regional Outreach
Manufacturing workers working in a manufacturing plant
Jake MacDonald/Minneapolis Fed; Getty Images

Article Highlights

  • Demand down, nearly every business indicator turned negative for manufacturers in 2023
  • 2024 outlook generally positive for business conditions and employment
  • Firms expect interest rates to negatively affect activity in year ahead
Coming off a slump in 2023, manufacturers expect a modest rebound in the year ahead

While the U.S. economy surprised many observers in 2023 with its resiliency amid cooling inflation, the story for the manufacturing sector was less pleasant. As one Michigan manufacturer succinctly put it: “Tough year!”

Activity decreased last year for Ninth District manufacturers, according to a survey conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development in November and early December. However, those same survey respondents have optimistic outlooks for their firms in 2024.

The survey results reflect responses from more than 400 manufacturing operations of various sizes, randomly sampled across district states. Most survey results can be summarized as an index representing changes in activity over the previous year and expectations for the coming year, in which values greater than 50 indicate expansion and values below 50 indicate contraction (see Figure 1).

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Half of respondents reported that orders from customers decreased in 2023, compared with 29 percent who saw increased orders. Production levels, productivity, and exports decreased as well, though only slightly on balance, and most respondents reported no change. One of the only indicators to expand was investment in plant and equipment, with a slightly higher share reporting an increase in capital spending than those who reported a decrease.

A strong majority of manufacturers indicated they increased the prices charged for their products from a year ago, which is no surprise given elevated inflation rates. However, profits fell on balance, indicating that lower demand and higher input costs outweighed increased prices.

In keeping with contracting activity, employment declined slightly, with 29 percent reporting decreased headcount versus 21 percent who saw an increase. Survey comments indicated that continued, limited labor availability restrained hiring, and 42 percent of firms indicated that labor availability had decreased. Wage pressures also remained elevated. Almost half of manufacturers reported raising wages by 3 percent to 5 percent in 2023, while 30 percent of them increased wages by more than that.

Despite a down year, expectations for 2024 call for a modest rebound. Manufacturers overall anticipate growth in most indicators in the coming year, including production levels and productivity, though a substantial share expect unchanged levels. The outlook for capital spending was roughly flat, and profits are expected to decrease on net.

Prospects for demand are more mixed but positive on balance. A third of manufacturers expect increased orders this year, slightly greater than the share who expect them to decrease. The outlook for prices remains elevated, as 42 percent of respondents expect to raise their selling prices further compared with only 12 percent who see them decreasing.

Firms expect tight labor market conditions to persist, as 61 percent forecast no change in worker availability. A slightly higher proportion of respondents plan to add to their workforces in 2024 than those who anticipate layoffs, though the majority of respondents expect no change. On average, wages and benefits are expected to increase at a slower pace than last year.

In contrast to the positive outlook among manufacturers for their own operations, expectations for state economies in 2024 are pessimistic. The negative outlook might be due in part to credit conditions, as firms reported they expect current interest rates to have a negative effect on their investment, hiring, savings, and inventory in the year ahead (see Figure 2).

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District manufacturers expect state employment, business investment, consumer spending, economic growth, and corporate profits to contract over the next 12 months. Inflation remains the largest concern, with more than half of respondents predicting an increase in the coming year.

Manufacturing survey data

Ninth District: 426 Responses

Business indicators in 2023 compared with 2022
  Up Same Down Diffusion index*
Number of orders 29% 21% 50% 40
Production level 23% 50% 27% 48
Employment level 21% 50% 29% 46
Investment in plant/equipment 30% 41% 29% 51
Selling prices 60% 29% 11% 75
Profits 22% 32% 46% 38
Productivity 24% 51% 25% 49
Exports 6% 73% 21% 42
Expected business indicators in 2024 compared with 2023
  Up Same Down Diffusion index*
Number of orders 33% 39% 28% 53
Production level 25% 60% 15% 55
Employment level 22% 60% 18% 52
Labor availability 13% 61% 25% 44
Investment in plant/equipment 23% 53% 24% 49
Selling prices 42% 46% 12% 65
Profits 25% 42% 33% 46
Productivity 31% 54% 15% 58
Exports 8% 79% 13% 47
What is your outlook on the following state economic indicators during 2024?
  Up Same Down Diffusion index*
Business investment 19% 50% 31% 44
Employment 18% 52% 29% 45
Consumer spending 9% 40% 51% 29
Inflation 50% 33% 17% 67
Economic growth 12% 45% 43% 34
Corporate profits 14% 41% 44% 35
Compensation in 2023
  Decrease 0% 1%–2% 3%–5% 6%–10% >10%
Wages per worker 2% 12% 9% 48% 22% 8%
Benefits per worker 5% 28% 11% 30% 18% 8%
Expected compensation in 2024 Note: Percentages may not add to 100 due to rounding.
* Values above 50 indicate expansion; values below 50 indicate contraction. The index is computed by taking the percentage of respondents that reported "up" and half the percentage of the respondents that reported "same."
Source: Federal Reserve Bank of Minneapolis and Minnesota Department of Employment and Economic Development
  Decrease 0% 1%–2% 3%–5% 6%–10% >10%
Wages per worker 2% 13% 19% 58% 7% 1%
Benefits per worker 2% 33% 14% 35% 10% 6%
Joe Mahon
Director, Regional Outreach

Joe Mahon is a Minneapolis Fed regional outreach director. Joe’s primary responsibilities involve tracking several sectors of the Ninth District economy, including agriculture, manufacturing, energy, and mining.