The Big Picture Report on U.S. Manufacturing Business Conditions (August 2022)

Revealing data on the U.S. manufacturing sector continued to roll in this month, pointing to modest improvements in the labor market, some relief in high prices, a surprise turnaround in manufacturing output, and more. Get the latest data on manufacturing output and capacity utilization, prices, optimism, and regional performance in our key takeaways from July’s most critical manufacturing business reports.

Executive Summary

• The PPI for final demand goods sank 1.8% in July – its largest decline since the start of the pandemic, while the ISM’s prices index plummeted 18.5% to a two-year low.
• The number of unfilled manufacturing jobs held steady at 793,000, while hiring held steady.
• Manufacturing output rose unexpectedly after three straight months of declines.
• Manufacturing activity in the New York region plummeted, with readings in for the region among the lowest in New York Fed's survey history. Other regional surveys showed muted growth.
• Capacity utilization in manufacturing is now 1.6% above its long-run average.
• The U.S. auto sector has seen a 13.3% increase in output compared to this time last year.

Manufacturing Output Reverses Losses in July

Following three months of decline, U.S. manufacturing production edged up 0.7% in July, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released August 16th. Meanwhile, the index for mining rose 0.7%, while the utilities index declined 0.8%. Altogether, total industrial production increased 0.6% July.

Manufacturing capacity utilization rose a half percent in July, following a half-percent decline in June, and is now 1.6% above its long-run average. This suggests manufacturers are taking advantage of the improving labor market and cranking up production to meet a backlog of demand.

Manufacturing sectors that saw the sharpest increase in capacity utilization in July included motor vehicles and parts; fabricated metal products; and aerospace & miscellaneous transportation equipment. Sectors decreasing capacity included printing & related support activities and petroleum & coal products.

July’s output increases were strongest in motor vehicles & parts, which rose 6.6% in July and 13% year-over-year. Gains in other sectors were more muted, with fabricated metals up 2.1%, and apparel and leather up 1.6%; and aerospace up 1.5%.

Output losses were sharpest in printing & related support activities (-1.7%) and electrical equipment (-1.4%).

Hiring in Manufacturing Holds Steady, Unfilled Positions Decline

U.S. manufacturers added 30,000 jobs in July, roughly in line with the 29,000 positions the sector created in June, according to the latest from the Bureau of Labor Statistics.

Read more: Hiring Trends in U.S. Manufacturing

Meanwhile, the U.S. economy as a whole added 528,000 positions, and the unemployment rate dipped to 3.5%.

In July, employment gains were strongest in fabricated metal products (+4,200 jobs), chemicals (+3,700); and semiconductors (+3,500).

Gains were offset by losses in motor vehicle parts (-2,200), as well as electronic instruments (-1,400).

Meanwhile, according to the latest JOLTS (Job Openings and Labor Turnover Survey) reported August 12th, the number of unfilled job openings in the sector held steady at 793,000 in July. While this is still a historic level for job openings in manufacturing, hiring has picked up from an all-time high of one million unfilled positions reported in April.

Muted Manufacturing Activity, but Signs of Inflation Relief

U.S. manufacturing activity continued to slide, hitting another two-year low in July. The ISM reported August 1st, that its activity reading on the U.S. manufacturing sector declined 0.2% in July to a reading of 52.8%. This means the sector is still in expansion mode (any reading over 50 indicates expansion) but is growing at a slower rate, as demand and production declined.

Manufacturers saw some signs of inflation relief in July, with the ISM’s prices index sinking 18.5% to a reading of 60%--the lowest it’s been in two years. This was reflected in a significant decline in the Producer Price Index tracked by the Bureau of Labor Statistics, released on August 11th, which found the price index for final demand goods moved down 1.8% -- the largest decline recorded since April 2020.

This may have contributed to a marked increase in optimism amongst manufacturing executives in July, with the ISM recording six positive comments for every one negative comment, compared to the three-to-one ratio reported in June.

Eleven of eighteen industries surveyed by the ISM reported growth in July, led by apparel, leather & allied products, nonmetallic mineral products; petroleum and coal products; and printing/related support activity.

Regional Surveys Mixed

Empire State Manufacturing Survey After recovering slightly in July, activity in the New York region fell precipitously in August, falling 42 points to a reading of -31, according to the latest Empire State Manufacturing Survey, released at the beginning of August. The Fed noted this was among the sharpest decreases recorded in the history of the Empire State survey.

The report finds that new orders and shipments contracted sharply, while unfilled orders shrank for a third straight month.

12% of executives surveyed reported that business conditions had improved, while 44% responded that conditions had worsened.

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, saw improvement in July, rising from -9 in June to 0 in July.

The uptick was led by the shipments and volume of new order indices, while the employment index declined slightly.

Texas Manufacturing Outlook Survey Meanwhile, Texas manufacturing activity held steady in July, expanding at a modest pace overall. The production index remained in expansion territory at a reading of 3.8, while the shipments index rose to 4.3 and capacity utilization held steady at 3.5.

The survey’s new orders index, however, remained in contraction at -12, while the general business conditions index declined five points to -22.6.

Kansas City February Manufacturing Survey. Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) also held steady in July, hitting a reading of 13 in July from 12 in June, with growth measurably slower than reported in the spring of 2022.

The slower pace of growth was attributable to less activity in in electrical equipment, electronic products, transportation equipment, primary metals manufacturing, and food manufacturing.

Manufacturers in the region were more optimistic this month, with the futures composite index bouncing back to 26 in July, from a reading of 10 in June. More companies were expecting increases in production, shipments, new orders, capital expenditures, and more, according to the survey.

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