Economic Indicators for U.S. Manufacturers (May 2023 Roundup)

Economic indicator reports released in the month of May suggests the U.S. manufacturing sector may be turning a corner, with several key metrics climbing back from the deep losses seen in the first quarter of 2023. While the sector continues to grapple with diminishing demand and supply chain complexities, the latest data provides a glimmer of hope, indicating potential improvements on the horizon. Get the latest data on regional performance, manufacturing output and capacity utilization, prices, optimism, and more in our roundup of the most important manufacturing business reports released in May.

Executive Summary

• U.S. manufacturing output rebounded in April, led by a surge in motor vehicle production.
• While U.S. manufacturing posted its sixth straight month of contraction, conditions improved considerably compared to previous months, with new orders, output, and employment rising.
• Regional surveys were subdued across the board, with most regions reporting depressed manufacturing activity.
• U.S. manufacturing employment rebounded from a two-month losing streak, adding 11,000 jobs in April.
• Unfilled manufacturing jobs in the U.S. remain elevated at 695,000 open positions.
• The Fed’s mining output index rose this month, bolstered by a rise in oil and gas extraction.

Manufacturing Output Rebounds, led by the Automotive Industry

Driven by a rebound in motor vehicles and parts production, U.S. manufacturing output rose one percent in April, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released May 16th. Meanwhile, the index for mining increased 0.6%, helped largely by oil and gas extraction, while the utilities index sank 3.1%. The Fed’s overall industrial output index for April was largely unchanged over March, edging up a half percent overall.

Meanwhile, manufacturing capacity utilization rose 0.7% in April to a reading of 78.3%. Notably, this is 0.1% above its long-run average.

Capacity utilization increases in manufacturing were led by motor vehicles and parts, which saw a 6.4% spike in output in April. Chemicals; computer & electronic products; primary metals; and food processing also saw capacity utilization increases in April. Decreases in capacity utilization were few and far between, seen in plastics & rubber products; aerospace; and apparel & leather products; among others.

Most U.S. industrial sectors posted marginal losses in output in April, with the exception of motor vehicles & parts, which surged 9.3%. Increases were also seen in computer & electronic products, up 2.1% and plastics and rubber products, up 1.2%. Meanwhile, food processing and chemicals each advanced 0.7%.

Output declines were minor, with the sharpest decreases seen in miscellaneous manufacturing, down 1.4% and apparel/leather products, down 0.7%.

Notably, the U.S. automotive industry was the clear winner for year-over-year output gains, with output in motor vehicles up 8.5% over this time last year.

U.S. Manufacturing Employment Rebounds from 2-Month Losing Streak

According to the latest from the U.S. Bureau of Labor Statistics, the U.S. manufacturing sector enjoyed a slight rebound in employment, with the sector reporting an increase of 11,000 jobs in April, following two straight months of job losses.

Read more: Hiring Trends in U.S. Manufacturing

In April, employment gains were strongest in durable goods manufacturing, which added 10,000 jobs. Non-durable goods manufacturing added 1,000 jobs.

Fabricated metals added the most workers, up 6,300 jobs. This was followed by transportation equipment (+ 5,800); computer & electronics manufacturing (+3,200); and chemical production (+2,000).

These gains were offset by losses in paper manufacturing, which shed 2,300 jobs and wood products manufacturing, which lost 1,300.

Meanwhile, the latest JOLTS (Job Openings and Labor Turnover Survey) reported the number of unfilled job openings in the sector remains elevated at 695,000.

Additionally, the Bureau of Labor Statistics reported on April 15th, that its Producer Price Index (PPI) for final demand goods increased 0.2% in April after decreasing 1% in March.

ISM Report Supports Evidence of Output, Employment Growth in Manufacturing

Meanwhile, the U.S. manufacturing sector posted its sixth straight month of contraction, according to the latest survey by the Institute for Supply Management released May 1st.

Despite the contractionary reading recorded in May, the sector performed marginally better than in previous months, with the index rising 0.8% to a reading of 47.1%. The picture brightened for demand, with the ISM’s New Orders Index rising 1.4% to 45.7%.

Meanwhile, output rose 1.1% to a reading of 48.9%, and employment bounced back into expansion, climbing 3.3% to a reading of 50.2%.

Timothy Fiore, Chairman of the ISM stated that supply chains are “eager for growth,” with panelists reporting reduced lead times for their most valued purchases. Fiore cautioned, however, that price instability remains entrenched, and that future demand is uncertain as companies scramble to address overdue deliveries and backlogs.

Five of eighteen industries surveyed by the ISM reported growth in April. These were printing & related support activities; apparel, leather & allied products; petroleum & coal products; fabricated metals; and transportation equipment.

Related: Selling in a Downturn: Opportunities & Best Practices

Regional Surveys Reveal Subdued Manufacturing Activity

New York Manufacturing Survey In May 2023, business activity witnessed a sharp decline in New York State, as reported by participating firms in the Empire State Manufacturing Survey. The headline general business conditions index plummeted by 43 points to reach -31.8. New orders and shipments experienced a significant plunge following last month's notable increase. Delivery times showed a slight reduction, while inventories contracted. Both employment and hours worked declined for the fourth consecutive month. Prices exhibited a similar pace of increase compared to the previous month. Capital spending plans displayed sluggishness, and businesses held low expectations for improvements in conditions over the next six months.

Philly Fed Manufacturing Index: Covering Pennsylvania, New Jersey, and Delaware, manufacturing activity in the Philadelphia region continued its overall decline, according to the May Manufacturing Business Outlook Survey. Although the survey showed slight improvements compared to the previous month, indicators for general activity, new orders, and shipments remained negative. Responding firms reported a decline in employment, while price indexes remained below long-run averages, with the prices received index experiencing further decline. Looking ahead, the survey's future indexes reflected subdued expectations for growth over the next six months. The diffusion index for current general activity rose to -10.4 from -31.3, marking its ninth consecutive negative reading.

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, revealed a deterioration in business conditions, as indicated by the recent survey conducted by the Federal Reserve Bank of Richmond. The composite manufacturing index decreased from -5 in March to -10 in April. Two of the three component indexes, namely shipments and new orders, experienced declines. The shipments index dropped from 2 in March to -7 in April, while the new orders index fell from -11 to -20. However, there was a slight increase in the employment index, rising from -5 in March to 0 in April.

Kansas City February Manufacturing Survey. Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) experienced a moderate decline, while expectations for future activity remained positive. Price indexes showed an increase compared to the previous month but decreased from the previous year, with expectations of minimal change over the next six months. The month-over-month composite index dropped to -10 in April, down from 0 in both March and February. The decline was primarily driven by nondurable goods plants, particularly printing, plastics, paper, and food manufacturing.

Texas Manufacturing Outlook Survey According to the Texas Manufacturing Outlook Survey, Texas factory activity remained flat in April following modest growth in March. The production index, a key measure of manufacturing conditions in the state, decreased slightly from 2.5 to 0.9, indicating no significant change in output compared to the previous month.

Other indicators of manufacturing activity displayed mixed signals in April. The new orders index, although still negative for the 11th consecutive month, improved by five points to -9.6. Similarly, the growth rate of orders index remained negative but increased from -15.2 to -11.1. The capacity utilization index edged up to 3.9, while the shipments index saw a slight improvement from -10.5 to -2.8.

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