The Big Picture Report on U.S. Manufacturing Business Conditions (January 2022)

The first manufacturing reports of 2022 are optimistic across the board, signaling continued strong growth while hinting at relief in the relentless supply chain pressures that have rattled the sector since the start of the pandemic.

Today we’re exploring the key takeaways from the month’s most vital manufacturing business reports, including the latest data on output, labor, prices, regional activity, shipping, inflation and more.

Executive Summary

• Unfilled positions in the U.S. manufacturing sector eased back from record highs, suggesting greater slack in the labor market going into 2022.
• Manufacturers added 26,000 jobs in December, roughly the same as in November.
• The NY Fed unveiled a new global supply chain pressures index, which finds supply chain pressures appear to have peaked and may begin to moderate going forward.
• The ISM’s Prices Index sank 14.2% in December, while supply deliveries are still slowing—but at a slower rate.
• Regional surveys show strong growth in the sector, with the Texas survey’s company outlook index hitting a 5-month high.
• Manufacturing output held steady in December.

Manufacturing Output Holds Steady in December

U.S. industrial production declined 0.1% in December, according to the latest report from the Federal Reserve.

Taken alone, manufacturing output declined 0.3% in December, while manufacturing capacity utilization declined 0.2% to 77%, which is 1.5% higher than pre-pandemic levels, but still below its long-run average.

The index for mining rose 2%, while utilities declined 1.5%.

Manufacturing sectors with the highest capacity utilization include machinery, furniture & related products, paper products, and plastic & rubber products, all of which have a utilization over 80%.

Taking a closer look at the Fed’s manufacturing data, industrial output losses were spread out across multiple sectors, led by miscellaneous durable goods manufacturing, down 2.7%; plastics, down 1.8%; printing/support activities, down 1.8%; and petroleum and coal products, down 1.6%.

Gains were seen mostly in durable goods, led by nonmetallic mineral products, up 1.5%; and wood products, up 1.2%. Machinery, computer and electronic products, furniture, and chemicals also posted minor gains.

Inflation & Supply Chain Developments

Meanwhile, as supply chain disruptions continue to impact the U.S. manufacturing, the New York Federal Reserve announced its new index for measuring global supply chain pressures. The new index, coined the Global Supply Chain Pressure Index, combines metrics such as the Baltic Dry Index, the Harper Index, and data from the ISM as well as the Labor Department.

The new index finds that the growth of container shipping rates has fallen in recent months, while this early data suggests supply chain pressures, which still remain at historic levels, appear to have peaked and may begin to equilibrate going forward.

Hiring in Manufacturing Steady as Job Openings Edge Back

In December, manufacturers hired at roughly the same rate as in November, adding 26,000 jobs. Meanwhile, the U.S. economy as a whole added 199,000 positions in December.

Gains were spread out across multiple sectors and were strongest in the automotive sector, with motor vehicles & parts adding 4,200 jobs and transportation equipment adding 3,900 jobs. Machinery was also strong in December, adding 7,700 positions. Other sectors adding jobs included wood products (+2,100) primary metals (+1,900); and furniture (+1,600).

Gains were offset by losses in the paper products sector (-1,500) and the computer & electronics sector (-900). Semiconductors; computer & peripheral equipment; and communications equipment also posted marginal losses.

Additionally, the latest JOLTS (Job Openings & Labor Turnover) Survey, released January 4th, also shows job openings in the U.S. manufacturing sector edged down to 818,000 in November from October’s revised figure of 963,000, suggesting industrial companies were finally starting to add more workers.

Manufacturing Activity Report Suggests Easing of Supply Chain Bottlenecks

Meanwhile, the Institute for Supply Management reported that activity in the manufacturing sector took a big step back in December, easing 2.4% to a reading of 58.7%.

Although this might sound like bad news, metrics like new orders and production continue to hit expansionary levels, and even the employment index rose last month. However, the prices index sank 14.2% in December, bringing down the overall reading. In addition, the ISM’s Supplier Delivery Index edged down 7.3%, meaning supplier deliveries are now slowing at a slower rate. December’s more muted reading of both prices and supplier deliveries suggests supply chain bottlenecks may be starting to ease.

Fifteen of eighteen industries surveyed by the ISM reported growth in December, led by apparel, furniture, textile mills, and plastic/rubber products. 

Regional Manufacturing Surveys

Richmond Fed Manufacturing Survey: Manufacturing in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, continued to expand in December, with the composite index coming in at 16, compared to November’s reading of 12.

December’s survey found shipments and new orders posted strong gains, while employment declined slightly, but is still well within expansionary territory. The average growth rate of prices paid and received increased, but companies expect prices to moderate in 2022.

Texas Manufacturing Outlook Survey: Meanwhile, manufacturing activity in Texas also continued to expand in December, with the survey’s key production index holding steady at 26.7.

Other indexes supported an accelerating manufacturing sector, with new orders at 18.1—well above the series average of 6.7. The growth rate of orders index also remained elevated at 13.4. Meanwhile, capacity utilization was strong, edging up several points to 27.8.

The survey revealed continued optimism in the sector, with the company outlook advancing several points to 8.6, which is the highest it has been since August of 2021. Other barometers of future activity such as capital expenditures and employment, also remained positive.

Looking for U.S. industrial supplies? Search, source & quote for free on the industrial marketplace IndustryNet.