The latest data on business conditions for manufacturers reveals a U.S. industrial sector still struggling with high prices and supply shortages, and while manufacturers are still in expansion mode, growth is far more muted that it was earlier in 2022. Meanwhile, we’ve seen another unexpected shift in the employment picture, while regional surveys show a sharp downturn in optimism. Get the latest data on manufacturing output and capacity utilization, prices, optimism, and regional performance in our key takeaways from July’s most critical manufacturing business reports.
Manufacturing Business Conditions: Executive Summary
• The number of unfilled manufacturing jobs fell to 797,000 in May, after hitting a record high of one million positions in April (data reported in July).
• Hiring in manufacturing picked up speed in June, with the auto sector leading gains.
• The PPI for final demand goods rose 2.4% in June, with 90% of the increase attributable to a spike in final demand energy.
• Manufacturing output declined for a third straight month in June, with losses led by non-durable goods.
• Regional surveys showed a significant slowdown in manufacturing activity.
• Optimism among manufacturers remains subdued in most regions, with optimism falling sharply in the Texas and New York regions.
Manufacturing Output Posts Third Straight Month of Declines
U.S. manufacturing production inched down 0.5% in June, in a third straight month of decline, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released July 15th. Meanwhile, the index for mining rose 1.7%, while the utilities index declined 1.4. Total industrial production fell 0.2% June.
Manufacturing capacity utilization fell a half percent in June, following a 1% decline in May. Notably, the current manufacturing capacity utilization reading of 79.3% is 1.1 percentage point above its long-run average.
Manufacturing sectors that saw the sharpest decline in capacity utilization included textile & product mills; petroleum & coal products; plastics & rubber products; machinery, and primary metals. Sectors increasing capacity utilization over the month included wood products, apparel & leather, electrical equipment, and miscellaneous manufacturing.
June’s output declines in manufacturing were sharpest in printing & support (-2.2%); petroleum & coal products (-1.9%); primary metals (-1.6%); and motor vehicles & parts (-1.5%). Industries that saw a gain in output over the month included apparel & leather (+2.5%); miscellaneous manufacturing (+2.2%); and electrical equipment (+1.3%).
Hiring in Manufacturing Accelerates; Unfilled Positions Decline
U.S. manufacturers added 29,000 jobs in June, running ahead of the 18,000 positions created in May, according to the latest from the Bureau of Labor Statistics.
Read more: Hiring Trends in U.S. Manufacturing
Meanwhile, the U.S. economy as a whole added 372,000 positions, while the unemployment remained steady at 3.6%.
In June, employment gains were strongest in transportation equipment (+7,200 jobs), miscellaneous nondurable goods manufacturing (+5,400); plastics & rubber products (+5,300); and food manufacturing (+4,800).
Gains were offset by losses in electronic instruments (-1,900), as well as wood products (-1,200), and textile product mills (-700).
Meanwhile, after hitting an all-time record high of one million jobs in April, the number of unfilled manufacturing jobs declined to 797,000 in May, according to the latest JOLTS (Job Openings and Labor Turnover Survey) provided by the BLS on July 6th.
Manufacturing Activity Fell to Lowest Point in 2 Years
Meanwhile, manufacturing activity in the U.S. fell to its lowest level in two years, falling 3.1% to a reading of 53%, which means the sector is still expanding (any reading over 50 indicates expansion), but is growing at a slower rate.
In June, the ISM’s New Orders index fell into contraction, while the Employment Index also contracted, falling 2.3% to a reading of 47.3%. Meanwhile, production expanded at a slower rate, and the ISM reported record-long lead times for capital expenditures and materials.
Fifteen of eighteen industries surveyed by the ISM reported growth in June, led by apparel, leather & allied products, textile mills; printing & related support activities; and computer/electronic products.
Meanwhile, prices paid by manufacturers continued to trend up in June, reflected in the Labor Department’s Producer Price Index released July 14th, which found the PPI for final demand goods rose 2.4% in June, representing the sixth consecutive month of increases. The PPI reported roughly 90% of June’s price increase for final demand goods is attributable to a 10% increase in final demand energy.
Regional Surveys Muted, Show Waning Optimism
Empire State Manufacturing Survey: After falling into contraction in May and June, manufacturing activity in the New York region rebounded in July, advancing twelve points to a reading of 11.1., according to the latest Empire State Manufacturing Survey.
The report find that new orders increased slightly in July, while shipments accelerated rapidly, surging 25.3%. 34% of respondents to the survey reported better business conditions In July. However, the New York Fed reports that industrial businesses are expressing pessimism about the future. The index for future business conditions fell sharply, declining 20 points to a contractionary reading of -6.2. This is only the third time in the survey’s history that respondents have expressed pessimism about future business conditions. Respondents do not expect orders to increase, while expectations are that delivery times and unfilled orders are expected to decline.
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, declined further in June, falling from a reading of -9 in May to -11 in June.
The decline was led by the shipments and volume of new order indices, with shipments falling to -15 and new orders falling to -26. Meanwhile, the employment index expanded strongly, rising to 16 in June from a reading of 8 in May.
Texas Manufacturing Outlook Survey: Meanwhile, Texas manufacturing activity fell sharply in June, with the survey’s production index falling 16.5 points to a reading of 2.3 in June—its lowest reading since May 2020.
Additionally, the survey’s New Orders index fell into contraction for the first time in two years, falling from a reading to 3.2 in May to -7.3 in June.
Manufacturers in the Texas region were generally less optimistic compared to May, with the future general business activity index falling 20 points to -26.0.
Kansas City February Manufacturing Survey: Factory activity in the 10th District (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) slowed further in June, easing from a reading of 23 in May to 12 in June.
The slower pace of growth was attributable to less activity in durable goods facilities, with slowdowns seen in electrical equipment, transportation equipment, and furniture-related product manufacturing.
This month, the 10th district included a special survey on passing through costs, disruptions/shortages and future expectations. The results were revealing, with companies reporting that the top three supply chain disruption affecting their businesses were delays in shipping, lack of availability, and warehousing and storage. 60% expected supply chain disruptions and shortages to remain unchanged or worsen in the next 6 months.
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