The latest batch of economic indicator reports released in August reflects somewhat improved conditions for the manufacturing sector. While a wide range of challenges persist for industrial companies, such as a tight labor market and easing demand, continued investment in the sector suggests a manufacturing boom may be around the corner. Wondering what the latest data tells us? Get the latest on regional performance, manufacturing output, capacity utilization, and more in our roundup of the most important manufacturing business reports released in August.
Executive Summary
• U.S. manufacturing output edged up a half percent in July, led primarily by gains in the auto industry.
• The auto industry was also the star of the latest jobs report, which has been leading job gains in manufacturing for the past several months.
• Despite the auto industry’s gains, hiring in the U.S. manufacturing sector fell by 2,000 jobs in July overall.
• While manufacturing activity contracted for a ninth consecutive month in July, the rate of decline slowed.
• The number of unfilled manufacturing jobs in the U.S. continues to decline, though are still at unusually high levels, compared to historical numbers.
• While most regional surveys continued to be subdued, the Philadelphia region manufacturing survey (encompassing Pennsylvania, Delaware and New Jersey) found general activity turned positive for the first time since May 2022.
Manufacturing Output & Capacity Utilization Advances
Manufacturing output picked up speed in July, climbing 0.5%, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released August 16th. Meanwhile, the index for mining moved up a half percent and the index for utilities jumped 5.4%. Overall, industrial production advanced one percent in July.
Meanwhile, manufacturing capacity utilization advanced to a reading of 77.8 --0.4% above its long-run average.
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Industries seeing an increase in capacity utilization included motor vehicle parts, which saw the largest spike in capacity, advancing 3.8%. Other industries gaining capacity over the month included machinery, computer & electronic products, textile and product mills, and petroleum and coal products. Industries that experienced a decline in capacity utilization include electrical equipment, appliances & components; food products; paper products; and plastics/rubber.
The U.S. automotive led industrial production gains in July, with the sector’s output spiking 5.2%. This was followed by textile and product mills, which climbed 3.1% and machinery, which rose 1.3%. Petroleum and coal products and computer & electronic products also saw output rise.
Industries that suffered output losses included electrical equipment, appliances & components, down 1.7%; furniture, down 1.2%; and primary metals, also down 1.2%.
Auto Industry Leads July Manufacturing Job Gains
Following a 7,000-job gain in June, manufacturing employment in the United States decreased by 2,000 jobs in July, according to the latest report from the U.S. Bureau of Labor Statistics. Meanwhile, the U.S. economy added 187,000 jobs overall in July, and the unemployment rate was little changed at 3.5%.
Job losses were led by the non-durable goods industries, which shed 10,000 jobs, offsetting a 8,000-job gain in durable goods. The U.S. chemicals industry led July’s manufacturing job losses, shedding 4,600 jobs.
For a second straight month, transportation equipment overwhelmingly led July’s manufacturing jobs gains, with the sector adding another 5,200 jobs, adding to a 7,200-job gain in June and a 10,500 job gain in May.
U.S. manufacturers are still struggling to hire, though overall number of job openings in manufacturing has declined. The Labor Department recorded 577,000 unfilled positions for the sector in June, compared to 588,000 open positions reported in May.
U.S. Manufacturing Activity Contracts at a Slower Rate
Meanwhile, manufacturing activity in the U.S. experienced its ninth consecutive month of contraction, but the rate of decline slowed down, as indicated by the Institute for Supply Management's (ISM) survey of purchasing executives. The ISM's index of manufacturing activity increased by 0.4% to reach a reading of 46.4%. While the sector remains in contraction, this uptick suggests that the decline in activity is occurring at a less severe pace compared to previous months.
Despite the overall contraction, there were some positive signs within the sector. Demand, while still contracting, showed improvement with the New Orders index rising by 1.7% to 47.3%, following a 3% increase in June. Similarly, output also saw a slight improvement, rising 1.6% to a reading of 48.3%, although it remained in contraction territory.
However, the employment situation worsened, with the Employment Index falling deeper into contraction by 3.7% to 44.4%. This suggests that companies were reducing production and cutting jobs more significantly due to ongoing uncertainty.
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Regional Surveys Mostly Subdued
New York Manufacturing Survey: Manufacturing activity in the New York region declined in August 2023, as revealed by the latest Empire State Manufacturing Survey. The general business conditions index fell by twenty points to -19.0, marking the first negative reading since May. New orders and shipments also saw substantial drops, with the new orders index falling by twenty-three points to -19.9 and the shipments index decreasing by twenty-six points to -12.3. This pointed to a moderate decrease in both orders and shipments.
The future outlook appeared more optimistic, with the index for future business conditions rising by six points to 19.9, indicating increased optimism about future conditions. This sentiment was driven by expectations of higher new orders, increased shipments, growing employment, and a firmer stance on capital spending plans.
Philadelphia Region Manufacturing Survey: The August survey conducted by the Federal Reserve Bank of Philadelphia reveals growth in the manufacturing sector across the Philadelphia region, which includes Pennsylvania, New Jersey, and Delaware. This marks the first time since May 2022 that general activity, new orders, and shipments have all shown positive indicators. However, employment remained negative. The survey's diffusion index for current general activity climbed from -13.5 in July to 12.0 in August, the first positive reading since August 2022. Around 25% of firms reported increased activity, compared to 17% in July, while 13% reported decreases. Most firms (58%) reported no change.
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, showed modest improvement, according to the recent Federal Reserve Bank of Richmond survey. The composite manufacturing index inched up from -9 in July to -7 in August, with two out of three component indexes, shipments, and new orders, also experiencing increases. Shipments went from -6 in July to -5 in August, and new orders improved from -20 to -11, although the employment index dropped from 5 in July to -3 in August. There was a notable rise in optimism about local business conditions, with the index increasing to 2, and the future local business conditions index climbing from 1 in July to 10 in August.
Kansas City Manufacturing Survey: Factory activity in the 10th District (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) continued its decline, with limited changes in expectations for future activity. Firms in the district experienced increases in the prices paid for raw materials on both a monthly and yearly basis, while prices received for finished products moderately declined on a month-over-month basis. Looking ahead, firms predict a faster increase in input prices but a slower increase in finished product prices.
The month-over-month composite index was -11 in July, showing a slight improvement from -12 in June but a decrease from -1 in May. This index, an average of production, new orders, employment, supplier delivery time, and raw materials inventory indexes, indicated a slightly eased decline for durable goods and a steady decline for nondurable goods.
Texas Manufacturing Outlook Survey: According to the Texas Manufacturing Outlook Survey, Texas factory declined slightly in July. The production index, a significant gauge of state manufacturing conditions, remained relatively stable at -4.8, signifying a modest contraction in output.
Additional measures of manufacturing activity also signaled contraction during July. The new orders index, in negative territory for over a year, decreased further to -18.1. Although the capacity utilization and shipments indexes remained negative, they showed some improvement at -2.4 and -2.2, respectively. The capital expenditures index continued its trend of fluctuation within a low or slightly negative range since February, registering at -2.4 in July.
Perceptions of broader business conditions worsened during the month. The general business activity index remained negative but rose slightly to -20.0, while the company outlook index declined further into negativity at -16.9. The outlook uncertainty index increased by four points to reach 20.5.
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