As demand continues to soar for U.S.-made products, manufacturers continue to struggle with supply chain disruptions, long lead times, rising prices, and difficulties finding skilled workers. This month, however, some early reports suggest some of these challenges might be starting to ease. So what do the latest numbers say?
Today we’re exploring the key takeaways from the month’s most vital manufacturing business reports, exploring the latest data on output, labor, prices, regional activity and more.
Executive Summary
• Manufacturing capacity utilization hit its highest level since January 2019.
• Optimism among manufacturers nationwide picked up in slightly October.
• The Texas Manufacturers Outlook survey’s uncertainty index has hit a level not seen since the onset of the pandemic.
• There were some early signs of relief in inflation, with a key shipping index falling 50% in November.
• The container logjam at the Port of Los Angeles shows signs of easing.
• Hiring in manufacturing doubled over last month.
Manufacturing Output Advances as Capacity Utilization Hits 3-Year High
Following a 1.3% decline in September, U.S. industrial output rebounded in October, rising 1.6%, according to the latest report from the Federal Reserve on industrial production. According to the Fed, much of the rebound is accounted for by the recovery from Hurricane Ida. Taken alone, manufacturing output rose 1.2%, while utilities climbed 1.2%, and mining rose 4.1%.
Manufacturing capacity utilization increased 1% in October to 76.7%. This is the highest rate recorded since January of 2019.
Most sectors saw an increase in capacity utilization, strongest in petroleum and coal products; wood products, aerospace and miscellaneous transportation equipment; chemicals; and printing/related support activities.
Taking a closer look at the Fed’s manufacturing data, industrial output gains were led by the motor vehicles and parts industry, up 11%. This was followed by petroleum products with 5%, and chemicals with 1.9%.
Output remained stable for most other industries, with most reporting marginal gains. Meanwhile, a handful of industries reported negligible losses in output, including textile mills, down 1.5%; electrical equipment, also down 1.5%; and machinery, down 1.3%.
Looking at year-over-year data, most industries saw significant increases in output compared to October 2020, led by petroleum and coal products, up 13.7%; motor vehicles, up 12%; primary metals (+10.4%); and computer & electronic products (+10.3%).
Early Signs of Relief in Inflation, Supply Chain Disruptions
Meanwhile, some very early signs suggest supply chain disruptions and inflationary pressures may be starting to ease. For starters, a widely used measure of global shipping rates called the Baltic Dry Index (BDI) a leading indicator for inflation, peaked early in October, and this month sank 50%, suggesting prices may be starting to ease.
Additionally, despite fears of widespread shortages around Christmastime, CEOs of the nation’s largest retailers collectively reported their inventories were solid ahead of the holiday. And GM reported that for the first time since February, the company did not have to idle any plants this month due to a chip shortage.
Meanwhile, congestion at the Port of Los Angeles is starting to let up, with the number of import containers stuck at the port falling by a quarter, prompted by new hefty fines for idle container.
Hiring in Manufacturing Accelerates
In other good news, manufacturers added 60,000 jobs in October, more than double the number added in September, suggesting that hiring challenges in the sector may be starting to abate.
Meanwhile, the U.S. economy as a whole added 531,000 positions.
October’s manufacturing job gains were overwhelmingly led by the automotive sector, with that industry adding 2,700 jobs. This was followed by fabricated metals with 5,800 jobs, chemicals with 5,600, and miscellaneous durable goods products with 3,500.
Gains were offset by losses in furniture, down 600 positions, and nonmetallic mineral products, down 400.
Manufacturing Activity Expanding at a Slightly Lower Level
Meanwhile, the Institute for Supply Management reported that activity in the manufacturing sector eased 0.3% in October to a reading of 60.8%. Industrial executives continued to report and materials shortages, shrinking inventories, rising backlogs, and lengthy deliveries.
Prices rose at a faster pace compared to September, growing 4.5% to a reading of 85.7%, led by increases in steel, aluminum, PCBs and a host of other materials.
Meanwhile, optimism improved slightly in October, with 4 positive comments registered for every one negative comment, compared to 3 positive comments for every one negative comment reported in September.
Sixteen of eighteen industries surveyed by the ISM reported growth in October, led by furniture/related products, textile mills, electrical equipment, appliances and components, and machinery.
Regional Surveys Show Continued Growth in Manufacturing
Empire State Manufacturing Survey: After declining in September, manufacturing activity in the New York area rebounded strongly.
The latest survey, collected between November 1st and November 9th, shows manufacturing activity in the region advanced by eleven points to a reading of 30.9 (anything over “0” signifies expansion). In the survey, 43% of respondents reported that conditions have improved for their business, while 12% reported conditions had worsened.
Looking ahead, optimism dipped slightly, with the index for future business condition falling 15 points to 36.9. Industrial executives continue to expect longer delivery times, high prices, and increases in employment. Meanwhile, both capital and technology spending continue to increase.
Kansas City Manufacturing Survey. Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) eased back slightly in November. According to the Fed, manufacturing activity in the region hit a reading of 24 in November, down slightly from October’s reading of 31.
Supplier delivery time increased this month, while the volume of new orders decreased. This month, the Kansas City Fed survey asked special questions about hiring and the labor market, which revealed that 63% of manufacturers expect to hire in the next 12 months, while a stunning 99% of those planning to hire are doing so because the growth of sales is so high. 56% report they are already at or above pre-pandemic employment levels and only 5% of companies said they would not return to pre-pandemic employment levels.
Richmond Fed Manufacturing Survey After falling into contraction in September, manufacturing activity in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, rebounded in October, advancing from a reading of -3 in September to 12 in October.
October’s survey found shipments, new orders and employment were all on the rise, while vendor lead times hit an all-time record. Survey respondents continued to complain of low inventories for finished goods and raw materials.
The growth rate of prices paid decreased in October, according to the survey, but that of prices received increased.
Texas Manufacturing Outlook Survey Meanwhile, manufacturing activity in Texas grew at a slower pace in October, with the survey’s key production index falling six points to a reading of 18.3.
Other indexes supported an accelerating manufacturing sector, with new orders up 5 points and demand indexes rose.
The survey revealed ongoing supply chain issues, with unfilled orders and delivery times both on the rise. Optimism was higher in October, with the outlook index rising back above negative territory. However, uncertainty among manufacturers appears to be on the rise, with the survey’s outlook uncertainty index hitting 29.0—the highest reading since the beginning of the pandemic.
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.
MNI also provides a direct path for U.S manufacturers to increase their visibility among domestic procurers and to expand into new markets.
