Multiple reports out this month point to continued growth in the U.S. industrial sector, with notable increases in new orders, production and employment. Optimism among industrial executives appears to be on the rise, while a wider range of manufacturing industries are reporting growth.
Meanwhile, activity on the industrial marketplace IndustryNet shows an increase in sourcing activity for U.S. parts, products and services.
IndustryNet helps buyers find suppliers in the industrial world. In October, activity on the platform trended 36% higher over October 2019, with searches for everything from domestic steel and chemicals to conveyors and printing up significantly (you can follow our weekly search insights here).
Today, we’re bringing you the big picture look at business conditions for manufacturers, compiling key takeaways from various reports on output, labor, new orders, optimism and regional activity.
Manufacturing Output Rebounds in October
U.S. Industrial production rose 1.1% in October after easing back in September, according to the latest report from the Federal Reserve, released November 17th. The Industrial Production and Capacity Utilization report is a composite index that includes manufacturing, mining and utilities. This is the first significant rise in industrial production in several months.
Taken alone, manufacturing output increased a full percentage point in October, following September’s 0.1% increase. Utilities output rose 3.9%, while mining decreased 0.6%.
Overall, the reading for industrial output in October was 5.6% below February’s pre-pandemic level, though the sector has regained more than half of the historic losses seen between February and April.
Taking a closer look at the Fed’s manufacturing data, manufacturing output sits at 5% below its pre-pandemic levels. Durable foods manufacturing rose 0.9%, while non durables rose 1.2%. Capacity utilization for manufacturing specifically rose 0.7% to 71.7%. This is 11.6% higher than its lowest level recorded in April, but still falls short of its long run average by 6.5%.
Looking at the data by subsector, October’s manufacturing output gains were more evenly distributed across multiple industries (in the past several months, the auto sector dominated swings in production). Non-metallic mineral products, primary metals, electrical equipment aerospace and miscellaneous manufacturing saw the strongest gains in output on the durable goods side.
In non-durable goods, printing & related support activities, paper products, plastics & rubber products, chemicals and apparel/leather all posted notable gains.
Taking a year-over-year look, most sectors have posted losses, with petroleum & coal products; aerospace manufacturing; primary metals; apparel/leather and furniture/fixtures registering double digit losses.
The auto industry reversed this trend, however, with that sector up 6.9% year-over-year. Computer and electronic products manufacturing has also remained an aberration to this downward 12-month trend, with output up 1.3%.
Manufacturing Hiring Eases Back
In the month of October, the U.S. economy as a whole added 638,000 jobs and the unemployment rate fell to 6.7%. Manufacturing companies added 38,000 jobs – roughly half the number of jobs the sector added in September. The U.S. factory sector is still 621,000 jobs short of pre-pandemic levels.
Factory hiring has leveled off following the sharp rebound in hiring seen in the spring and early summer of 2020, and October’s report was no exception. However, October's report was unique in that job gains were more evenly distributed across multiple sectors – a positive sign for the health of the sector and similar to the Fed’s reading on manufacturing output.
In previous months, job gains in manufacturing were mostly led by the transportation equipment sector, which added roughly 175,000 jobs during the recovery period, while other sectors added far fewer jobs or posted losses. In October, that changed, with numerous industries posting gains, while the transportation equipment industry actually lost jobs.
For a more detailed look, read our report: Inside the Labor Report: Manufacturers Add Jobs Across Wider Span of Industries
Gains were seen specifically in fabricated metals, primary metals, machinery, wood products, computer & electronic products, food manufacturing, plastic and rubber manufacturing and printing/publishing
Manufacturing Activity Hits Two-Year High
Meanwhile, the Institute for Supply Management’s monthly report on business found manufacturing activity in the U.S. hit a two-year high in October, with the overall index soaring to 59.3%.
Manufacturers saw more new orders in October, with that index hitting a level not seen since 2004, while output levels also registered an increase, up 2% to a current level of 63%.
Most surprising in the ISM’s index was the employment metric, which registered expansion for the first time during the recovery. Factory hiring has been a sticking point in the otherwise rosy ISM reports over the past few months, with the employment index mired in contraction. In October the employment index rose to 53.2%.
Optimism appeared to hold steady among executives, with the ISM reporting 2.3 positive comments for every 1 negative comment.
Among some of the more positive comments from respondents to the survey, one executive in the chemical products industry said, “Business continues to be robust. Sales are greater than expectations, and cost pressures are modest. There is posturing by suppliers on market price increases for corrugated and polypropylene, yet no firm price increases at this time. We expect a strong finish to 2020 and a solid start in 2021.”
New York Fed Survey: Manufacturing Activity & Optimism Hold Steady in November
The Empire State Manufacturing Survey, released by the Federal Reserve, measures business conditions for the influential New York region. This data, collected between the 2nd and 9th of November, found that conditions for manufacturers expanded in November, but at a slower rate than in October.
The Fed’s manufacturing index fell four points to a new reading of 6.3, which indicates the sector is still growing, but at a slower rate than last month. The Fed reported new orders picked up slightly and employment levels rose. November ranks as the fifth consecutive month of expansionary readings for the sector.
The Fed’s New Orders index fell nine points and now sits at 3.7%, while shipments fell twelve points to 6.3.
Manufacturers remain optimistic about future business conditions, according to the survey. The optimism index, one of the most-watched metrics released by the Fed, remained steady in November, siting at 33.9, virtually unchanged from last month’s 32.8. Notably, capital expenditures and technology spending climbed several points to 17.9, suggesting that more manufacturers are looking to make new investments.
Other Regional Surveys Point to Growth
Other Fed Surveys across the U.S. provide specific regional insights. Let’s take a look.
• Texas Manufacturing Outlook Survey: Texas factory activity expanded for a fifth straight month in October, with new orders, production, and capacity utilization improving over September’s reading. Employment, while still expanding, eased back a few points, while the company outlook index rose to a two-year high
• Kansas City October Manufacturing Survey: Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) also expanded in October, but activity levels are still below what they were one year ago. Notably, 55% of manufacturers reported that employment was at or above pre-COVID levels. Additionally, the survey noted that most firms did not expect sales and capital spending to return to pre-COVID levels in the immediate future.
• 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 October, with the activity index rising from 21 in September to 29 in October. The survey noted improving business conditions, growing backlogs of orders and an uptick in optimism among survey respondents.
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