The Latest on Business Conditions for U.S. Manufacturers (March 2022)

As we head into the second quarter of the year, U.S. manufacturing companies continue to post strong gains in output and employment, yet relentless supply chain issues and potential fallout from the war in Ukraine continue to impact the sector. Discover key takeaways from the most vital manufacturing business reports in March of 2022, including the latest data on output, labor, prices, regional activity, and more.

U.S. Manufacturing Business Conditions: Executive Summary

• Manufacturing output rose significantly in February.
• Hiring in the U.S. manufacturing sector accelerated in February, while job openings rose to 855,000.
• The automotive industry continues to struggle amid shortages, posting sharp losses in output and employment.
• Manufacturer optimism rose significantly in February, while the ISM’s manufacturing activity index showed accelerating manufacturing activity.
• Regional surveys were divided, with the New York region manufacturing index posting its first contraction since May of 2020, while improvements in business conditions were seen in Texas and the Plains states.
• Manufacturers are reporting higher costs due to wage and benefits increases and are passing costs on to their customers.

Manufacturing Output Grows in February

U.S. manufacturing production posted one of the strongest readings in recent months, climbing 1.2% in February after posting little to no change in the previous two months.

Overall, industrial production rose 0.5%, with a 2.7% decline in utilities offsetting manufacturing’s gain. Meanwhile, mining output inched up 0.1%.

Manufacturing capacity utilization increased 0.9% in February to a reading of 78%. Notably, this is 2.5% higher than pre-pandemic levels, but 0.1% below its long-run average.

Manufacturing sectors with the highest capacity utilization include plastics & rubber, paper products, furniture & related products, paper products, apparel, wood products, and machinery all of which have a utilization over 80%. Sectors with the lowest capacity utilization include motor vehicles and parts, textile and product mills, and primary metals.

With the exception of motor vehicles and parts, all industries posted gains in output, strongest in nonmetallic mineral products, up 3.5%; aerospace and miscellaneous transportation equipment, up 3.2%, apparel and leather, up 3%; wood products 2.6% and furniture/related products, up 2.5%. All other durable goods sectors posted slight gains, while output in motor vehicles fell 3.5%.

Notably, most US. manufacturing industries posted significant year-over-year gains, strongest in chemicals (+14.6%); petroleum and coal products (+12.5%); nonmetallic mineral products (+11.7%), and printing and related support activities; (+10.9%).

Hiring in Manufacturing Ramps Up, But Auto Sector Struggles

U.S. manufacturers hired at a faster pace in February, adding 36,000 jobs in February, more than double the 13,000 jobs the sector added in January.

Meanwhile, the U.S. economy as a whole added 678,000 positions.

Manufacturing gains were spread out across multiple sectors and were strongest in the fabricated metal industry, which accounted for roughly a third of all manufacturing jobs gained. Gains were also strong in the machinery sector (+8,300 jobs) and food manufacturing (+7,200 jobs). With the exception of the auto sector, all other sectors posted notable gains in manufacturing jobs.

Losses were overwhelmingly led by the automotive industry, with transportation equipment shedding 20,700 positions and motor vehicles and parts losing 18,000 positions.

Meanwhile, unfilled positions in the sector rose to 855,000 in January (data reported March 9th of 2022), significantly up from the 746,000 jobs openings reported in December and a far cry from the 522,000 unfilled positions reported a year ago.

Manufacturer Optimism Climbs

Meanwhile, the Institute for Supply Management reported that growth in the U.S. manufacturing sector accelerated in February amid a notable uptick in optimism.

The ISM reported its index of manufacturing activity rose 1% in February to a reading of 58.6%. Manufacturers reported increased demand over the month, as well as a hike in backlogs, supplier deliveries, and exports. Meanwhile, prices eased off January’s record high, while a number of commodities remained in short supply, including semiconductors, steel products, and electronic components.

Meanwhile, manufacturer optimism took a notable turn for the better, with executives providing 12 positive comments for every one negative comment—the most optimistic the sector has been since the summer of 2021. Yet, manufacturers are bracing for further supply chain hurdles as the war in Ukraine triggers a ripple effect across the global economy.

Sixteen of eighteen industries surveyed by the ISM reported growth in February, led by apparel, furniture, textile mills, and paper products.

Regional Surveys Mixed

Empire State Manufacturing Survey Business activity in the New York State region fell for the first time since the start of the pandemic, according to the Empire State Manufacturing Survey. The survey’s general business conditions index sank 15 points into contraction, now registering -11.8. This is the first time the business index has fallen below “0” since May of 2020. New orders and shipments fell, inventories rose at the fastest pace in years, while delivery times increased significantly.

24% of respondents to the survey said business conditions had improved over the month, while 35% report conditions worsened. Despite this, manufacturers were more optimistic that conditions would improve in the next six months compared to last month, with the index for future business conditions rising 8 points to 36.6.

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, fell in February, sinking 7 points to a reading of 1. Indexes for both new orders and shipments fell into contraction in February, although the employment index advanced significantly from a reading of 4 in January to 20 in February.

Texas Manufacturing Outlook Survey Meanwhile, Texas manufacturing activity expanded at a slightly slower rate in February compared to January. The survey found new orders advanced 3 points to 23.1, while production fell, declining 2 points to a reading of 14.5. The general business activity index rose 12 points to 14, while the company outlook index rose a modest 4 points to 6.4.

Outlook remained mostly positive, with the future production index rising five points to 42.1, while the future general business activity index added 4 points for a reading of 20.6.

Kansas City February Manufacturing Survey Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) saw activity accelerate in February. The survey’s composite index advanced six points in February to a reading of 29.

The increase was largely due to an increase in output, shipments, new orders, and employment. Broken down by specific industries, growth was driven by machinery manufacturing, plastics, fabricated metals, and transportation equipment.

The Kansas City Fed survey included special questions about business costs and its downstream effect to its suppliers. Notable from that survey:

• 96% of companies reported higher business costs from wages and 84% reported higher costs from non-wage benefits.
• Other increased costs included higher financing costs and real estate expenses.
• 29% of companies reported passing on 80-100% of increased costs to customers.
• 35% reported passing on 20% or less of cost increases to customers.
• Many companies noted the accelerated pace of increasing prices was a top deterrent to passing on higher costs to customers.

Industrial Solutions for Changing Times

At MNI, our mission is to help U.S. businesses thrive, providing tried-and-true prospecting and procurement solutions since 1912. Powered by trusted MNI data, IndustryNet is an industrial marketplace that connects industrial buyers with 400,000 U.S. manufacturers and suppliers of more than 10,000 types of products and services. Set up a free account, search for suppliers, send quote requests and more with this free industrial marketplace.

IndustryNet is also a direct path for U.S manufacturers to increase their visibility among domestic procurers and reach out to decision-makers in the industrial world.