The second quarter of 2022 is shaping up to be another challenging one for U.S. manufacturers. While the war in Ukraine wreaks havoc in the global energy markets, a new supply chain debacle is beginning to emerge in China as the country enforces fresh COVID lockdowns. Yet, certain key metrics are beginning to improve. Discover key takeaways from the most vital manufacturing business reports released in April of 2022, including the latest data on output, labor, prices, regional activity, and more.
Executive Summary
• Manufacturing capacity utilization moved above its long-run average for the first time since August 2018.
• Hiring in the U.S. manufacturing sector held steady in March, while job openings fell to 802,000.
• Labor shortages appear to be easing, with the ISM’s employment index expanding rapidly.
• A special survey of Texas manufacturers found supply-chain disruptions are impacting revenue in 2022 more than they were in 2020.
• Factory activity in the Plains/Mountain region hit a record high, while most other regions posted strong gains.
• Manufacturers are bracing for downstream impact of Port of Shanghai cargo buildup.
Manufacturing Output Grows in February
U.S. manufacturing production increased 0.9% in March, adding to February’s 1.9% gain, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released April 15th. The Fed also registered a 0.4% gain for utilities, and a 1.7% gain for mining.
Manufacturing capacity utilization increased 0.6% in March to a reading of 78.1%. Notably, capacity utilization this month moved above its long-run average for the first time since August 2018.
Manufacturing sectors with the highest capacity utilization include plastics & rubber, furniture & related products, and machinery, all of which have a utilization over 85%. Sectors with the lowest capacity utilization include textile mills; primary metals; and motor vehicles and parts, all with a capacity utilization under 75%.
March’s output gains in manufacturing were largely driven by the auto sector, which posted a 7.8% increase in output. Changes in output were marginal in all other sectors, with the exception of aerospace and miscellaneous transportation products, which grew 1.9%; and plastics/rubber, which advanced 1.1%. Primary metals, nonmetallic mineral products, furniture, textiles, and printing and related support activities all posted marginal losses.
Notably, most US. manufacturing industries posted significant year-over-year gains, strongest in chemicals (9.8%); furniture (+9.5%); nonmetallic mineral products (+7.5%); computer and electronic products (+7.5%); and machinery (+6.1%).
Hiring in Manufacturing Ramps Up, Job Openings Decline
U.S. manufacturers added another 38,000 jobs in March, adding tot the 36,000 jobs the sector added in February, according to the latest from the Bureau of Labor Statistics.
Manufacturing gains were led by the automotive sector, with 11,000 jobs added in transportation equipment, in a reversal from February’s 20,000-job-loss in transportation equipment. Gains were also strong in the chemicals sector, which added 7,000 jobs and electric equipment & appliances, which added 4,000.
Losses were overwhelmingly led by the nonmetallic minerals industry, which shed 4,500 jobs.
Meanwhile, unfilled positions in the U.S. manufacturing sector declined to 802,000 in February (data reported March 29th of 2022). While still well above average, this represents a significant decline from the nearly one million unfilled positions the sector posted at several points in 2021.
Manufacturing Activity Slows, But Employment Picture Improves
Manufacturing activity in the U.S. slowed in March as supply chain disruptions and high prices continue to slam the sector. The ISM reported its index of manufacturing activity fell 1.5% in March to a reading of 57.1—which, notably, is still well within expansion territory. A major bright spot in the report was the ISM’s employment index, which rose 3.4% in March and expanding rapidly at 56.3%. This suggests chronic labor shortages that have been contributing to supply and output bottlenecks may be starting to improve.
Meanwhile, all eyes have been on inflation. The ISM reported its prices paid by manufacturers index surged 11.5% in March to a reading of 87.7%, driven by instability in global energy markets. This is the highest that index has been since June of 2021. Additionally, the Bureau of Labor Statistics reported the Producer Price Index (PPI) for final demand increased 1.4% in March, following a 0.9% increase in February and 1.2% hike in January.
Fifteen of eighteen industries surveyed by the ISM reported growth in February, led by apparel, furniture, food, beverage & tobacco products, and electrical equipment.
Manufacturers Brace for Another Supply Chain Mess with New Lockdowns in China
U.S. manufacturers that source parts and products from China are watching the situation at the Port of Shanghai with a wary eye. Shanghai, a city of 25 million has been in complete lockdown for the past 18 days as a part of China’s zero-COVID risk policy. This has caused cargo to build up not only at the Port of Shanghai, but in other Chinese cities subject to lockdown. This is already creating a ripple effect across manufacturers in Southeast Asia and is expected to impact supply chains around the world.
Texas Survey: Supply Chain Problems Worse in 2022 Than 2020
As part of its monthly Texas Business Outlook Survey, the Federal Reserve Bank of Dallas prepared a special questionnaire for Texas manufacturers in March. The Texas survey asked “What are the primary factory restraining your firm’s revenues, if any?”
In March 2022, 50% of manufactures reported supply-chain disruptions as the primary factor impacting revenue, while only 16% reported supply chain disruptions in July of 2020. Instead, 57% manufacturers listed weakened demand as their primary stumbling block in July 2020, while just 15% of manufacturers point to weakened demand in March 2022.
Related: Fabricated Metal, Electronics Demand Sparks Manufacturing Job Growth in Texas
Regional Surveys Mostly Positive
Empire State Manufacturing Survey After falling into contraction last month, business activity in the New York region rebounded in April, soaring 36 points to a reading of 24.6. While the prices paid index hit a record high, employment rose, new orders and shipments grew strongly and plans for capital and technology spending remained steady.
Richmond Fed Manufacturing Survey Manufacturing activity in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, also rebounded in March, increasing to 13 from a reading of 1 in February. Shipments, number of employees, and new orders volume all posted healthy growth in the region.
Texas Manufacturing Outlook Survey Meanwhile, Texas manufacturing activity was mixed in March. The survey found the production index held steady at 13.2%, while new orders fell to 10.5%--its lowest reading in more than a year. Capacity utilization grew four points to a reading of 15.1, while shipments declined 17 points to a reading of 7.
Kansas City February Manufacturing Survey Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) saw record activity in March. The survey’s composite index was 37 in March—the highest on record.
The increase was largely due to growth in transportation equipment, printing and paper, plastics, electrical equipment and furniture manufacturing. Indexes for production, shipments and new orders all increased in March.
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