U.S. manufacturers continue to post strong growth, although at a more moderate level compared to the runaway demand, backlogs and heightened output that defined 2021. Meanwhile, February’s reports suggest continued signs of relief in supply chain pressures and labor challenges.
Today we’re examining the key takeaways from the month’s most vital manufacturing business reports, exploring the latest data on output, labor, prices, regional activity, inflation and more.
Manufacturing Business Conditions for February 2022: Executive Summary
• Unfilled positions in the U.S. manufacturing sector eased significantly from record highs late last year, suggesting continued improvements in the labor market.
• Manufacturers added significantly fewer jobs in January, with losses in the auto sector wiping out significant gains across multiple other sectors.
• The ISM’s manufacturing activity index hit its lowest level since October 2020, while the Prices Index spiked.
• Regional surveys show muted growth, with the exception of the 10th District (Plains States) which saw activity speed up.
• Output inched up slightly in manufacturing, with capacity utilization at 1.8% higher than pre-pandemic levels.
Industrial Production Output Surges in January
U.S. industrial production posted one of the strongest readings in recent months, climbing 1.4% in January.
Taken alone, manufacturing output rose 0.2% in January, after declining 0.3% in December, while year-over-year, manufacturing output has climbed 2.5% in the past year.
The index for mining rose 1%, while utilities surged 9.9%, as demand for heating increased with unusually cold weather.
Meanwhile, manufacturing capacity utilization increased 0.1% in January to a reading of 77.3% --1.8% higher than the pre-pandemic level, but still 0.8% below its long-run average.
Manufacturing sectors with the highest capacity utilization include machinery, furniture & related products, paper products, apparel, and plastic & rubber products, all of which have a utilization over 80%.
Taking a closer look at the Fed’s manufacturing data, industries that posted the strongest gains in output included miscellaneous durable goods manufacturing (+1.4%); textile and products mills (+1.4%); machinery (+1%); and food, beverage, and tobacco products (+0.9%).
Industrial output losses were seen in petroleum and coal products (-1.5%); printing (-1.4%); and motor vehicles and parts (-0.9%).
Hiring in Manufacturing Steady as Tight Labor Market Eases
In January, employment in the U.S. manufacturing sector rose by 13,000 jobs or about 0.1%, roughly half the rate the sector had been adding jobs for the past several months, with significant jobs gains across multiple sectors wiped out by losses in the automotive sector.
Meanwhile, the U.S. economy as a whole added 467,000 positions.
Manufacturing gains were spread out across multiple sectors and were strongest in the food manufacturing and fabricated metals sector, which added 5,200 jobs and 5,000 jobs, respectively. Machinery posted a 3,600-job gain, while non-metallic minerals added 3,300. Wood products, computer and electronic products, chemicals, and durable miscellaneous manufacturing all posted notable gains above one percent.
However, these robust gains were offset largely by a big loss in the transportation equipment sector, which shed 9,500 jobs, while the motor vehicle and parts sector lost 4,900. Other losses included printing & related support activity (-2,500); petroleum & coal products (-1,800) and electronic instruments (-900).
Additionally, the latest JOLTS (Job Openings & Labor Turnover) Survey, released earlier this month finds that job openings in manufacturing fell significantly to 737,000 as of December 2021, suggesting the tight labor market that has plagued manufacturers for more than a year may be starting to ease.
Unfilled positions in manufacturing hit a record high of 963,000 in October 2021 before beginning to decline. In December 2020, manufacturing job openings stood at 444,000
Manufacturing Activity Moderates in January
Meanwhile, the Institute for Supply Management reported that the U.S. manufacturing sector is still expanding strongly, albeit at a slower rate compared to January.
The ISM’s index of manufacturing activity stands at 57.6% -- still well into expansion, but the lowest reading the index has registered since October 2020. Demand and output were strong in January, according to the ISM, while both imports and exports grew.
The ISM noted that January’s reading suggests improvement in the labor market and with supplier deliveries – two factors that have plagued manufacturers for many months now. The ISM’s employment index rose slightly, while supplier deliveries slowed at a slower rate.
However, prices—a central concern for manufacturers—spiked in January, with the ISM’s Prices Index advancing 7.9% to a reading of 76.1%.
Fourteen of eighteen industries surveyed by the ISM reported growth in January, led by apparel, furniture, miscellaneous manufacturing, and non-metallic mineral products.
Regional Surveys Mixed
Empire State Manufacturing Survey February’s Empire State Manufacturing Survey found that manufacturing activity was little changed in the New York region this month, with its general business conditions index advancing 4 points to a reading of 3.1.
Notable in this month’s reading was reported longer delivery times and the increase in unfilled orders. Labor market conditions improved, while the prices received index hit a new record high. Meanwhile, optimism hit its lowest level since mid-2020.
Richmond Fed Manufacturing Survey Manufacturing in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, found that manufacturing activity eased in January, with its composite index falling to 8 from a reading of 16 in December. The decline was largely due to new orders and employment, which saw their readings fall at the start of the year.
Backlogs fell considerably, while lead time remained high. And although manufacturing companies remained optimistic about future business conditions, optimism was slightly negative when it came to local business conditions.
Texas Manufacturing Outlook Survey Meanwhile, manufacturing activity in Texas expanded in January, but at a slower rate than reported in December. The survey found new orders held steady, signaling continued elevated demand. Meanwhile, the survey’s production reading registered 16.6—an eight-month low, but still above average.
34% of Texas manufacturing companies responding to the survey reported plans to increase hiring, and the employment index remained elevated.
The survey revealed elevated optimism about future business conditions.
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 speed up in January. The survey’s composite index advanced two points in January to a reading of 24.
The increase was largely due to an increase in output, employment, and order backlog. Happily, the growth in supplier delivery times eased. Broken down by specific industries, primary metals, machinery, electrical, furniture, and transportation equipment manufacturing fared the best.
The Kansas City Fed survey included special questions about COVID-19 impact and prices, which revealed that 52% of companies said 10% or more of their workers missed work due to COVID in January. Other notable trends included:
• 69% of companies reported adding overtime for current staff
• 65% of companies reported delaying orders because of staff issues.
• 33% expect to see decrease business activity over the next six months due to the Omicron variant.
• 38% of companies reported a strong negative effect on business activity due to the Omicron variant.
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