The Big Picture Report on Business Conditions for U.S. Manufacturers (May 2022)

May’s most critical business reports for manufacturers reveals a sector that continues to struggle with high prices, materials shortages, and global supply chain disruptions. This month we saw a big shift in the employment picture, some impressive gains in manufacturing capacity utilization, new data on producer prices, and changes in optimism among manufacturers.

Executive Summary

• Manufacturing capacity utilization reached a 15-year high in April.
• Hiring in the U.S. manufacturing sector accelerated in April, as unfilled positions rose to near-record levels.
• The ISM’s employment index skirted contraction with a greater number of quits reported in April.
• Regional surveys revealed waning optimism among manufacturers in some states, with a sharp decrease in manufacturing activity for the New York region.
• April’s Producer Price Index indicates an easing of price increases.
• City of Shanghai announced a date for the city’s reopening following COVID lockdowns that have disrupted global supply chains.

Manufacturing Capacity Utilization Hits 15-Year High

U.S. manufacturing production increased 0.8% in April, adding to March’s 0.9% gain, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released May 17th. Meanwhile, total industrial production rose 1.1%, with a 2.4% increase for utilities and a 1.6% uptick in mining.

Manufacturing capacity utilization increased another 0.6% in April to a reading of 79.2%, after adding 0.6% in March. Notably, April’s capacity utilization reading for manufacturing is the highest it’s been since April 2007.

Manufacturing sectors that saw the sharpest rise in capacity utilization included motor vehicles & parts, furniture/related products, non-metallic mineral products, fabricated metal products, and printing and related support activities. Sectors with the sharpest decrease in capacity utilization over the month included computer and electronic products, apparel and leather, and paper.

April’s output gains in manufacturing were strongest in the auto sector, up 3.9%. This was followed by primary metals, up 1.4%; nonmetallic mineral products, up 1.1%, and wood products, up 1.1%.

Hiring in Manufacturing Accelerates; Unfilled Positions on the Rise

U.S. manufacturers added another 55,000 new positions in April, running ahead of the 38,000 jobs the sector added in March, according to the latest from the Bureau of Labor Statistics.

Meanwhile, the U.S. economy as a whole added 428,000 positions.

For a second straight month, manufacturing gains were led by the automotive sector, with transportation equipment adding another 13,700 positions in April, following an 11,000-job gain in March.

Gains were also strong in the food manufacturing sector, which added 7,900 jobs and machinery, which added 7,400.

Very few industries lost jobs in April, limited to miscellaneous durable goods manufacturing, furniture, apparel, and textile product mills, all of which posted marginal losses.

Meanwhile, manufacturers are still contending with open positions, with the number of unfilled manufacturing jobs rising to 853,000 at last count, taken in March, compared to 783,000 open positions reported in February.

Manufacturing Activity Slows Further as More Workers Quit

Manufacturing activity in the U.S. slowed further in April, as manufacturers continued to grapple with inflation and continuing supply chain disruptions. The ISM reported its manufacturing index declined 1.7% in April to a reading of 55.4%.

Related: How APS Solutions Can Help Manufacturers Weather Supply Chain Disruptions

While metrics such as new orders and production were largely unchanged, manufacturers reported a higher number of quits, resulting in the ISM’s employing index dipping 5.4% to a reading of 50.9%.

Seventeen of eighteen industries surveyed by the ISM reported growth in February, led by apparel, furniture, machinery, and plastics & rubber products.

Meanwhile, prices paid by manufacturers eased slightly in April, but remain at historic highs, according to the ISM. This trend was reflected in the Labor Department’s Producer Price Index released May 12th, which found the PPI for final demand increased 0.5%--a marginal uptick compared to increases of 1.6% in March, and 1.1% in February.

News From Shanghai

U.S. manufacturers have been contending with severe supply chain disruptions stemming from COVID-related lockdowns in China. Shanghai and at least 32 cities across of China have been in full or partial lockdowns, causing cargo to build up and creating a ripple effect on supply chains around the world. However, this week the city of Shanghai reports it will be opening back up on May 20th.

Regional Surveys Show Waning Optimism

Empire State Manufacturing Survey Manufacturing activity in the New York region plunged unexpectedly in May, following a rebound in April’s metrics. The New York Fed reported its manufacturing index fell 36 points to a reading of -11.6. New orders declined and shipments fell at the fastest pace since early 2020. The Fed reports optimism among executives remains subdued, with the index for future business conditions unchanged and the capital expenditures index falling to its lowest level in several months.

This stands in direct contrast to April’s report, which found the index soaring 36 points to a reading of 24.6.

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, held steady in April, advancing one point over the month to a reading of 14. Shipments picked up in the region, increasing 9 points to 17.

Notably, survey participants expressed pessimism when it came to business conditions, with the Fed’s expectations index negative for the third time in the history of the survey. The only other two times the expectations index was negative was at the beginning of the pandemic.

Texas Manufacturing Outlook Survey Meanwhile, Texas manufacturing activity expanded moderately in April. The survey found the production index eased 2 points to a reading of 10.8%, while new orders expanded two points to a reading of 12.1%. Capacity utilization held steady while shipments picked up 5 points to 11.8. Notably, the raw materials index fell to its lowest reading in more than a year, though it is still far above its average. Optimism about future manufacturing activity eased, but still remained in positive territory.

Kansas City February Manufacturing Survey. After reaching record activity in march, Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) eased in April. The survey’s composite index moved down from its highest-ever reading of 37 in March, to 25 in April. Manufacturers reported a higher number of employees quitting compared to previous months, while 60% reported a decrease in the flow of applicants per job.

Industries that performed well in the Kansas City survey included computer & electronic products, primary metals, and furniture manufacturing,

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