Amid soaring demand for U.S.-made products, the nation’s manufacturing companies have reached a major milestone, with output for most industries reaching or exceeding pre-pandemic levels this month. Yet industrial output declined in September as manufacturers continue to struggle with a raft of challenges from supply and labor shortages to long lead times and high prices, leading many to wonder: is there any relief in sight?
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
• Companies continue to note struggles with high prices, supply shortages, backlogs, longer lead times, and lack of skilled workers.
• Industrial production declined in September, though output in most industries is up significantly from September 2020.
• The motor vehicle parts sector was the only industry to post a year-over-year decline in output.
• Optimism among manufacturers declined slightly in September.
• The Texas Manufacturers Outlook survey finds finished goods prices in the region have hit an all-time high.
• Manufacturing Activity in the 5th District (MD, NC, SC, VA, WV) fell into contraction in September, with shipments and new orders sinking below “0” for the first time since May of 2020.
• A special survey of 10th District manufacturers (KS, CO, NE, OK, WY, NM) finds a quarter are passing 81-100% of prices increases onto their customers.
Industrial Output Declines Amid Shortages, Ida Fallout
U.S. industrial output declined 1.3% in September, according to the latest report from the Federal Reserve on industrial production. Taken alone, manufacturing output eased back 0.7%, as material and labor shortages continue to plague the industry.
This follows the hopeful news released last month, that U.S. industrial output finally rose above pre-pandemic levels. The 0.7% decline in production reported for September, puts total U.S. industrial output slightly below pre-pandemic levels.
Meanwhile, mining output dropped 2.3% in September, which the Fed attributed to lingering effects from Hurricane Ida, while milder-than-usual weather prompted a 3.6% decline in utilities output.
Overall, industrial production has increased 4.3% in the third quarter—the one bright spot in the Fed’s latest report.
Manufacturing capacity utilization fell by 0.6% in September to 75.9%, dropping below its long-run average. Motor vehicles and parts; petroleum/coal products; chemical products; wood products; and plastics and rubber products were among the industries experiencing a decline in capacity. Meanwhile, electrical equipment, furniture; primary metals; printing and related support activities and textiles were among those that saw an increase in capacity utilization.
Taking a closer look at the Fed’s manufacturing data, the motor and vehicle parts sector saw the sharpest decline in output, down 7.2%, as a semiconductor shortage continues to hobble the industry. This was followed by petroleum and coal products, down 2.4% and chemicals, down 2.1%.
Output remained stable for most other industries, while electrical equipment, appliances and components increased by 1.3%; furniture rose by 1.2%; and primary metals production climbed 1.1%.
Looking at year-over-year data, most industries saw significant increases in output compared to September 2020, led by aerospace production, up 15.63%; primary metals, up 13.4%; and computer and electronic products, up 11%.
Motor vehicles parts, on the other hand, has posted a double-digit decrease in output over the year, down 13.7%., and was the only sector to experience a year-over-year decline in output.
Same Story, New Month: Minimal Job Creation in Manufacturing Persists While Unfilled Positions Remain at Historic Highs
Manufacturers added a modest 26,000 jobs in September, after adding 37,000 jobs in August, and 27,000 jobs in July as minimal job creation plagues the sector even as job openings remain at historic highs.
Meanwhile, the U.S. economy as a whole added just 194,000 positions as labor participation remained stuck at its lowest rate since the 1970s.
September’s manufacturing job gains were overwhelmingly led by the fabricated metals sector, with that industry adding 8,200 jobs, followed by machinery with 6,300 jobs and printing and related support activities with 4,200.
The motor vehicles and parts sector offset these gains, with employment in that industry down by 6,100 jobs and transportation equipment down by 5,100.
Manufacturing Activity Report Finds Prices Creeping Upward
Meanwhile, the Institute for Supply Management reported that the U.S. manufacturing sector reached its sixteenth straight month of expansion in September. The month’s report provided much of the same as we’ve been hearing all summer: soaring demand, labor and materials shortages, shrinking inventories, rising backlogs, and lengthy deliveries. Manufacturing activity continues to expand, as industrial companies struggle to get their products to market.
Prices, which had begun to ease in the summer months, edged back up in September over the 80% mark. Meanwhile, optimism fell another five points in September, with 3 positive comments for every one negative comment. By contrast, there were 36 positive comments for every one negative comment in May.
Seventeen of eighteen industries surveyed by the ISM reported growth in September, led by furniture/related products, petroleum and coal products, machinery, and electrical equipment.
Labor shortages continues to persist, with one executive in the paper products sector stating: “We are still amazed by the labor market. We used to have 100 applicants for an opening; we are now seeing about 10 — and often, the applicant does not show for the interview.”
Regional Surveys Mixed
Empire State Manufacturing Survey: On the tails of a strong rebound in manufacturing activity for August, growth eased back a bit in the New York region, declining 15 points to a reading of 19.8. The latest survey, collected between October 1 and October 8 suggests manufacturing in the region is still expanding, but at a slower rate compared to last month.
Looking ahead, the outlook remained positive for New York manufacturers, with the index for future business condition rising four points to 52%. Industrial executives expect significant increases in employment as well as prices. Meanwhile, both capital and technology spending is on the rise.
Kansas City February Manufacturing Survey: Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) expanded at a slower rate in September. The survey’s composite index fell six points in September to a reading of 22, though notably this is well within the range of expansion.
The Kansas City Fed survey included special questions about COVID-19 impact and prices, which revealed that 38% of companies reported plans to hire more workers in the remainder of 2021 than initially planned. In addition, the survey reports that 100% of respondents reported higher input costs due to elevated material or labor expanded. Of these:
• 41% are passing 0-20% of increased costs to their customers
• More than a third are passing 21-80% of price increases onto their customers
• Nearly a quarter are passing 81-100% of price increases.
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, fell into contraction in September, softening from a reading of 9 in August to -3 in September.
Survey respondents continued to report issues with long lead times and low inventories, while shipments and new orders fell below “0” for the first time since May of 2020.
The growth rate of prices paid increased in September, according to the survey, but that of prices received declined.
Texas Manufacturing Outlook Survey: Meanwhile, Texas manufacturers posted solid growth in September, with the production index rising 3 points to 24.2.
Meanwhile, shipments and capacity utilization rose 18.7 and 24.5 respectively, although demand fell slightly over the month. New orders also declined slightly but are still growing a t a reading of 9.5.
Prices continued to rise, with raw materials hitting a level of 80.4% and finished goods prices at 44.0 – which stands as an all-time high.
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