U.S. manufacturing companies started out the year strong, with a number of reports pointing to a steadily recovering factory sector. Activity on the industrial marketplace IndustryNet continues to show increased search volume over last year for U.S. parts, products and services. Meanwhile, a number of new manufacturing plants were announced in January, providing additional hope for the sector.
Today, we’re bringing you the big picture look at manufacturing business conditions, compiling key takeaways from various reports on output, labor, new orders, optimism and regional activity.
Manufacturing Output Stronger
U.S. industrial production rose 0.9% in January, slightly less than the 1.6% increase in December 2020, according to the latest report from the Federal Reserve, released February 17th. The Industrial Production and Capacity Utilization report, released monthly, is a composite index that includes manufacturing, mining and utilities.
Taken alone, manufacturing output performed slightly better, advancing 1% in January, while mining output rose 2.3% and utilities sank 1.2%.
Taking a closer look at the Fed’s manufacturing data, the increase in output for the sector represents its ninth consecutive month of gains. Meanwhile, capacity utilization for manufacturing increased 0.7% to 74.1%. This is 14.5% higher than its lowest level recorded in April at the height of pandemic-related shutdowns.
Looking at the data by subsector, non-durable goods manufacturing ran slightly ahead of durable goods, with the latter posting a 0.9% increase and non-durable goods manufacturing advancing by 1.2%.
On the durable goods side, primary metals accounted for most durable goods output gains, up 3.9%. Electrical equipment and appliances also performed well, up 2.3%, as did fabricated metals, up 1.8%. Losses were seen almost entirely in non-metallic mineral products.
On the non-durable goods side, output gains were seen across most sectors, with petroleum and coal products up 2.1%; apparel and leather up 1.9%; food products, up 1.4%; chemicals up 1.3%; textiles/apparel up 1.2%. Losses in durable goods were limited to paper products and printing and related support activities, down less than one percent.
U.S. Manufacturing Sector Sheds Jobs
In the month of January, U.S. manufacturers lost jobs for the first time since the sector's historic rebound from pandemic lows. U.S. manufacturers shed 10,000 jobs. Meanwhile, the U.S. economy as a whole added 49,000 jobs. The U.S. factory sector is still 553,000 jobs short of pre-pandemic levels, even as unfilled positions in U.S. manufacturing have hit an all-time high.
A closer look at the numbers, however, reveals that although manufacturing as a whole lost jobs in January, some industries posted significant gains.
Job losses were overwhelmingly seen in durable goods manufacturing (-17,000), whereas non-durable goods added jobs (+7,000).
Looking at durable goods, the automotive/transportation equipment sector lost the most jobs (-3,200) while fabricated metals lost 4,100 jobs. Notably, electrical equipment and appliances posted a gain, adding 1,800 jobs in January.
Non-durable goods told a different story, however, with chemical processing leading the sector’s 7,000-job gain. Chemicals added 10,500 jobs overall, while significant gains were also seen in food processing (+2,200). Minor losses were seen in apparel (-2,500); miscellaneous non-durable goods manufacturing (-1,800) and printing/related support activities (-1,200).
Manufacturing Activity Expands at a Slower Rate
U.S. manufacturing started off the year strong, with activity expanding in the sector – although at a slower rate than in December 2020. The Institute for Supply Management’s monthly report on business found manufacturing activity eased back 1.8% to a still-expansionary reading of 58.7% (any reading over 50 is considered expansionary.)
Manufacturers saw new orders, production, and employment expand in January, while supplier deliveries slowed and both imports and exports grew. The New Orders Index declined 6.4%, but was still expanding with a reading of 61.1%.
Meanwhile, the production index declined 4% to 60.7% and the employment index inched up 0.9% to 52.6%.
Optimism trended up among executives, with the ISM reporting three positive comments for every one negative comment. One executive in the fabricated metals sector stated, “Our current business demand is going way past pre-COVID-19 [levels].”
Regional Surveys Point to Growth
• Empire State Manufacturing Survey: The most recent Empire State Manufacturing Survey conducted between February 2nd and February 9th, found that factory activity continues to accelerate in the region, with the general business conditions index climbing six points to 12.1, which the Fed states is its highest level in several months.
32% of executives responding to the survey indicated improving business conditions, while 20% reported worsening business conditions. The survey reported new orders rose four points to 10.8, while optimism for future business conditions remained steady at 34.9%.
• Texas Manufacturing Outlook Survey: The latest Texas Manufacturing Outlook survey, released Feb 22nd, finds that Texas factory activity expanded at an accelerated rate in February, with output surging this month. Specifically, the production index spiked 15 points to a current reading of 19.9. Meanwhile, the new orders index rose seven points to 13.0 and the capacity utilization index climbed to 16.5.
• Kansas City January Manufacturing Survey: Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) accelerated in January, with activity levels at roughly where they were one year ago. A major milestone in the COVOD recovery, with economists citing COVID-19 vaccination as a factor in the heightened activity for the region.
• Fifth District Survey of Manufacturing Activity (Richmond Fed): Manufacturing activity in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, expanded in January – but at a slower rate compared to December. The Richmond Fed’s activity index declined from 19 in December to 14 in January. Notably, however, the sector remains in expansion, with any reading over “0” indicative of expansion. The survey suggested that although employment is improving for the region’s manufacturers, many industrial companies are having trouble finding workers.
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