Manufacturing reports released in the month of February reflect a sector that continues to struggle with waning demand and price issues – with some notable bright spots. Get the latest data on manufacturing output and capacity utilization, prices, optimism, and regional performance in our key takeaways from February’s most critical manufacturing business reports.
Executive Summary
• Manufacturing output and capacity utilization rose slightly in January, with capacity utilization hovering 0.5% below its long-run average.
• Output gains in were led by apparel manufacturing, which also posted the strongest year-over-year production reading.
• Job creation in manufacturing more than doubled in January, with companies adding 19,000 new positions, led by the food processing sector.
• U.S. manufacturing activity contracted for a third straight month, hitting its lowest level since the start of the pandemic.
• ISM Chairman expects demand to rebound in second half of 2023 as price disagreements and lead times between buyers and suppliers resolve.
• The number of unfilled manufacturing jobs remains historically high at 730,000 open positions.
• Regional surveys overall reflect depressed manufacturing activity, with the Texas region faring the best and the Mid-Atlantic region faring the worst.
Manufacturing Output
U.S. manufacturing production increased marginally in January, up 0.1%, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released February 15th. Meanwhile, the index for mining rose 2%, while the utilities index declined 9.9% due to an unseasonably warm January. The Fed’s overall industrial output index was unchanged over last month.
Manufacturing capacity utilization rose in January, up 0.5% to a reading of 77.7%, holding at a rate that is 0.5% below its long-run average.
Manufacturing sectors that saw increases in capacity utilization in January included nonmetallic mineral products, machinery, and food processing. Decreases in capacity utilization were seen in furniture and wood products, among others.
Industrial sectors posting the sharpest increases in output in January included apparel, up 3.7%. Other growing sector included wood products, which rose by 3.6%; nonmetallic mineral products, up 2.4%; textile and product mills, up 2.2%; food processing, up 1.7%; and machinery, also up 1.7%.
Notably, apparel was the clear winner for year-over-year output gains, up 13.7% from this time last year. This was followed by aerospace and miscellaneous transportation equipment, up 10.2% year-over-year.
January’s output losses were few and far between, and were sharpest in plastics and rubber products, down 1%; and wood products, also down 1%. Marginal losses were also seen in furniture, printing and related support activities, and petroleum and coal products.
Hiring in Manufacturing Picks Up Speed
Job creation in the U.S. manufacturing sector more than doubled in January, according to the latest report by the U.S. Department of Labor. The sector added 19,000 jobs in January, more than twice the 8,000 jobs U.S. manufacturing gained in February.
Read more: Hiring Trends in U.S. Manufacturing
In February, employment gains were overwhelmingly led by the food processing sector, which added nearly 7,000 positions. Nonmetallic mineral products, fabricated metals, and apparel also added jobs.
These gains were offset by losses largely in transportation equipment, which shed more than 8,000 jobs.
Meanwhile, according to the latest JOLTS (Job Openings and Labor Turnover Survey) reported the number of unfilled job openings in the sector has eased further, holding at 730,000.
Additionally, the Bureau of Labor Statistics reported on February 16th, that its Producer Price Index (PPI) for final demand goods increased 0.7% in January. This follows a 0.2% decrease in December, and a 0.3% increase in November.
Additionally, the BLS reports its index for final demand goods rose 1.2% in January, the largest increase since June 2022. This was mostly attributable 5% increase in final-demand energy, including a 6.2% increase for gasoline.
Manufacturing Activity Contracted for a 3rd Straight Month
Meanwhile, U.S. manufacturing activity slid into contraction for a third straight month in January, according to the latest survey by the Institute for Supply Management released January 3rd. Activity eased another 1% in January to a reading of 47.4%, the lowest it has been since May 2020.
Demand and output continued to decline in January, with new orders sinking another 2.6% and the production index falling 0.6%. Both metrics are in contraction with a reading of 42.2% and 48%, respectively.
On the bright side, Timothy Fiore, Chairman of the ISM, expects demand to rebound in the second half of 2023, as companies resolve issues surround price levels and lead times.
Only two of eighteen industries surveyed by the ISM reported growth in January: transportation equipment and miscellaneous manufacturing.
Related: Selling in a Downturn: Opportunities & Best Practices
Regional Surveys Show Depressed Activity
Empire State Manufacturing Index: Manufacturing activity in the New York remained in contraction in February, though conditions were not as bad as in January, according to the latest Empire State Manufacturing Survey. The survey finds the general business conditions index for manufacturers in the region rose 27 points, settling at -5.8.
The report found new orders continued to decline, while shipments remained steady, delivery times improved and inventories rose. Notably, employment declined, falling to -6.6, the first negative reading the region’s manufacturers have demonstrated since early on in the pandemic.
Notably, optimism improved in February, with the index for future business conditions rising 7 points to a reading of 14.7.
Philly Fed Manufacturing Index: Covering Pennsylvania, New Jersey, and Delaware, the Philly Fed Manufacturing Index fared considerably worse than its New York counterpart, plunging to -24.30 in February. This stands as the region’s sixth consecutive negative reading and the worse reading since the start of the pandemic.
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, reported a decline in business conditions for manufacturers in the region. The survey’s composite manufacturing index plunged from a reading of 1 in December to -11 in January. New orders, in particular, fared badly, diving to -24 in January from -4 in December.
Meanwhile, shipments and employment—the other two major components of the index—also declined.
Kansas City Manufacturing Survey: Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) held steady in January, while expectations for improved future conditions rose. The month-over-month composite index held at -1 in January, up from -4 in December.
The increased pace of growth was attributable to more activity at durable goods plants, particularly wood products, machinery and transportation equipment.
Texas Manufacturing Outlook Survey: Meanwhile, Texas manufacturing activity lost steam in January, after picking up speed in December. The Texas Manufacturing Outlook Survey found production in the region fell to 0.2 in January from a reading of 9.1 in December. Demand continued to slide, with the new orders index posting a negative reading for an eight straight month. Capacity utilization remained positive at 6.1, but shipments turned negative at -6.3.
Employment came in strong for the region in January, with the employment index climbing 4 points to a reading of 17.6. 31% of companies reported net hiring, while 13% reported net layoffs.
Meanwhile, the survey’s general business activity index remained in negative territory in January, but was slightly improved, rising 12 points to a reading of -8.4. Meanwhile, the company outlook index advanced 11 points, but still remains negative at -2.5.
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