As if rising prices, labor woes, long lead times and growing backlogs weren't enough for U.S. manufacturers, Hurricane Ida threw another curveball into the mix last month, impacting manufacturing output in the U.S. South even as companies continue to struggle with shortages triggered by the last extreme weather event back in February. We’ve yet to see the full impact of Ida on the sector, but generally U.S. manufacturing continues to expand at a brisk pace – and even reached a major milestone recently. So what are the latest trends? Today we’re exploring the key takeaways from the month's most important manufacturing reports.
Executive Summary: September
• Manufacturing output has reached a pandemic milestone.
• Factory job openings in the U.S. break another record, nearing one million.
• Prices are still on the rise, but not rising as quickly as in previous months.
• Elevated optimism among manufacturers is beginning to wane.
• Regional surveys point to more muted growth, higher future technology spend, higher capital expenditure plans, and worries over the delta variant.
• Companies continue to note struggles with high prices, supply shortages, backlogs, longer lead times, and lack of skilled workers.
Manufacturing Output Reaches Milestone
Following the significant impact of Hurricane Ida, U.S. industrial output barely budged in August after posting a significant increase in July.
According to the Federal Reserve, U.S industrial output rose just 0.4% as Ida shut down production in many facilities in the South, impacting petrochemical, resin and petroleum refining. The Fed estimates Ida struck three percentage points from August’s industrial output gains.
Taken alone, manufacturing output rose just 0.2%, while mining output fell 0.6% and utilities output rose 3.3%.
Industrial output now stands at 5.9% above readings one year ago, and in a significant milestone, output is 0.3% above pre-pandemic levels. Taken alone, manufacturing output is now one percent above pre-pandemic levels as demand continues to soar.
Looking at year-over-year data, industrial production climbed 6.6% from July 2020, while manufacturing output rose 7.4% year-over-year.
Meanwhile, capacity utilization in manufacturing rose 0.1% in August to a level of 76.7%. Paper manufacturing led the way with capacity utilization hitting a level of 84.2%. Machinery, plastics/rubber, wood products, and apparel/leather also registered capacity utilization greater than 80%.
Taking a closer look at the Fed’s manufacturing data, significant output gains were seen in a handful of industries. This included furniture and related products, which saw production rise 2.1%; followed by computer and electronic products (+1.2%) paper products (+1.1%); and fabricated metals products (0.7%)
Output remained stagnant for most other industries, while electrical equipment, appliances and components declined 1.2%; printing/related support activities and machinery each fell 0.8%, and chemical products edged down 0.6%.
Lukewarm Job Creation in Manufacturing Persist as Job Openings Head Toward One Million
Manufacturers added another 37,000 jobs in August, running ahead of the 27,000 jobs added in July. Although this is good news for the sector, the number of job openings in manufacturing is heading toward one million, with 942,000 positions currently unfilled, according to the most recent Job Openings and Labor Turnover Survey. Finding workers has emerged as one of the sector’s largest challenges.
August’s manufacturing job gains were overwhelmingly led by the auto industry, with that sector adding 24,000 jobs. This was followed by fabricated metal products, plastics and rubber products and food manufacturing. Computer and electronic products, as well as electronic instruments, and communications equipment also added significant numbers of jobs.
The industries that shed jobs included electrical equipment and miscellaneous manufacturing. Most other industries saw little change in job creation.
Manufacturing Activity Report Suggests Prices Easing
Meanwhile, the Institute for Supply Management reported that the U.S. manufacturing sector reached its fifteenth straight month of expansion in August. The month’s report provided much of the same: soaring demand, labor woes, shrinking inventories, rising backlogs, and lengthy deliveries.
Prices, which hit a 42-year high in June, eased back another 6.3% in August after falling 6.4% in July. The ISM’s Prices Index now rests at 79.4% -- the first time the index has fallen below 80% since December 2020. This means that although prices are still on the rise (any reading over 50% indicates expansion) they are not rising as quickly.
Optimism amongst manufacturers remains elevated though it has been falling incrementally since the spring. The survey noted eight positive comments for every one negative comment, compared to a 36:1 ratio reported in May. Comments from executives reflect continuing frustration over supply shortages, high prices and difficulty finding workers. Said one executive in the machinery sector: “Customer order backlog continues to climb because we are unable to raise production rates due to supplier parts and manpower challenges. Continue to see price increases with key commodities, and logistics is an ongoing challenge that has no end in sight.”
Fourteen of eighteen industries included in the survey reported growth for August, led this month by furniture and related products as well as computer and electronic products.
Regional Surveys Point to Continued Growth, Investment
• Empire State Manufacturing Survey: On the tails of a minor contraction in August, manufacturing activity in the New York region rebounded in September, advancing 16 points to a reading of 34.3. This included strong hiring, new order, shipments and unfilled orders, which all increased. This is according to the latest Empire State Manufacturing Survey conducted between September 2nd and September 9th.
Optimism remained unchanged, with the index for future business conditions remained high at 48.4%. Looking ahead, manufacturers expect increases in employment and prices. The capital expenditures index reached a multi-year high at 33.9% and technology spending index hit a record high of 33.
• Kansas City February Manufacturing Survey: Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) remained steady in August. The survey’s composite index hit a reading of 29, virtually unchanged from July’s reading of 30. The August survey included special questions about COVID-19 impact, which showed 60% of companies reported a decrease in flow of applicants to jobs and 35% report quits are up. Largely speaking, manufacturers in this region have not been impacted by the recent surge in COVID cases, though 20% reported decreased activity and 35% expected the surge in cases to lead to a decrease in business activity. “If this latest surge continues,” said one respondent, “suppliers will slow due to worker safety as happened last year.”
• 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, expanded at a slower rate in August, falling to a reading of 9 from July’s reading of 27. Manufacturing however is still in expansion in the region, with any reading over 0 indicating expansion. Survey respondents noted long lead times and low inventories, while shipments, new orders and employment expanded at a slower rate.
• Texas Manufacturing Outlook Survey: Meanwhile, Texas manufacturing activity also expanded at a slower rate in August. Output fell by 10 points, hitting a level of 20.8—well within expansion. New orders also expanded at a slower rate, hitting a level of 15.6—double the series average of 6.5. The general business activity index slipped to 9, which is its lowest reading since January.
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 helps U.S industrial suppliers to increase their visibility among domestic procurers, and makes it easy for industrial companies to expand into new markets. Click here to learn about how an IndustrySelect subscription can help you develop the right pool of leads for your product.
