As demand continues to surge, U.S. manufacturing companies are seeing rapid growth, yet the sector is facing some major obstacles. So what are the latest numbers as we head into the third quarter? Today, we’re compiling key takeaways from the month’s most vital industrial reports, delivering insights on manufacturing output, labor, regional activity, optimism and more.
Executive Summary
• The most recent industrial production report revealed modest gains in output, with advances in production more consistent across multiple sectors in non-durable goods.
• Manufacturing is still plagued by a worker shortage, with job openings hitting a new record of 872,000.
• The auto industry accounted for much of the labor and output gains reported this month.
• Manufacturing activity reached its 12th straight month of expansion, while executive optimism continues to soar.
• Companies note struggles with meeting demand, record lead-times, supply shortages, rising prices and worker shortage.
• Regional surveys pointed to slightly slower growth though optimism for future business conditions increased.
Manufacturing Output on the Rise
U.S. industrial output advanced in May at roughly the same rate as reported in April. The latest report from the Federal Reserve found that industrial output rose 0.8% in May, following a 0.7% in April.
Taken alone, manufacturing output rose 0.9% in May, led by a significant rise in motor vehicle production. Mining output rose 1.2%, while utilities rose 0.2%.
Looking at year-over-year data, industrial production has climbed 16.3% from May 2020. Taken alone, manufacturing output has risen 18.3% year-over-year, while mining rose 16.5% and utilities advanced 3.6%.
Meanwhile, capacity utilization in manufacturing advanced 0.7% in May to a level of 75.6%.
Taking a closer look at the Fed’s manufacturing data, both durable and non-durable goods saw an increase in output, with a 1% increase for durable goods and a 0.8% increase in non-durable goods.
Gains in durable goods output were overwhelming led by the automotive sector, with motor vehicles and parts production rising 6.7% in May and surging 140% year-over-year. Other durable goods industries posting gains included computer and electronic products, up 1.6% and furniture, up 1.5%. All other durable goods industries posted minor losses in May.
On the non-durable goods side, gains were more spread out across industries, with strong positive readings seen in printing and related support activities, apparel & leather; and chemicals. The paper industry was the only one to tally a loss, down 1.6%.
Hiring in Manufacturing Slows in April, Even as Unfilled Positions Rise
After shedding jobs in April, manufacturers began to hire again, but not at rate fast enough to staff the more than 800,000 positions currently unfilled.According to the Labor Department’s most recent report, manufacturers added 22,000 jobs in May, yet the number of unfilled positions set a new all-time record high of 874,000 as a labor shortage continues to plague the sector. This included 471,000 unfilled jobs in the durable goods industry and 380,000 unfilled jobs in the non-durable goods industry.
According to the Labor Department, employment in manufacturing is still 509,000 jobs shy of pre-pandemic levels, suggesting that if manufacturers were to staff the 872,000 positions currently unfilled, manufacturing employment would surpass February 2020's level by 363,000 jobs.
May’s manufacturing job gains were led by the auto industry, which added 24,000 jobs. Multiple other industries posted strong gains in May, including fabricated metal products, food manufacturing, miscellaneous durable and non-durable goods and more.
By contrast, just a few industries posted significant losses in May. These included machinery (-4,700 jobs); paper products (-2,000); and chemicals (-1,000).
Manufacturing Activity Continues Expansion
Meanwhile, the Institute for Supply Management reported that the U.S. manufacturing sector reached its twelfth straight month of expansion in May. The ISM reports U.S. manufacturing activity inched up a half percentage point to a reading of 61.2% (any reading over 50 indicates expansion).
New orders, output, and employment all expanded over the month, while the ISM’s optimism metric tripled over the month, with 36 positive comments for every one negative comment (compared to the 11 to 1 ratio reported in April).
However, industrial executives continue to cite a raft of challenges with concerns over high prices, supply shortages, labor issues, and long lead times dominating the comments section of the report.
Sixteen of eighteen industries included in the survey reported growth for May, lead by furniture & related products; non-metallic mineral products and plastics.
Regional Reports Point to Slower Growth
• Empire State Manufacturing Survey: Manufacturing activity accelerated in the New York area in June, albeit at a slower pace than reported in May. According to most recent Empire State Manufacturing Survey conducted between June 2nd and April 9th, found that factory activity in the region hit 17.4, falling 7 points, but still in expansion territory. New orders and shipments grew, while delivery times lagged significantly.
45% of executives responding to the survey indicated plans to increase employment over the next six months, while the overall index for future business conditions rose eleven points to 47.7%.
• Kansas City February Manufacturing Survey. Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) expanded strongly in May, hitting a reading of 26. This is slightly lower than the reading of 31 registered in April, but still well within expansion. The growth in May’s reading was attributed to increased activity in durable goods, including fabricated metals, machinery, and transportation equipment. Prices continue to be elevated, with prices paid and prices received hitting a record high and 98% of manufacturers reporting elevated prices compared to a year ago. Companies expect the prices for materials and finished goods to continue to rise in prices over the next six months.
• 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 strengthened to reading of 18 in May. Manufacturers in the region were generally optimistic about future business conditions, while employment expanded. Meanwhile, vendor lead time rose to a record level of 64, breaking a 25-year record for the fourth month in a row.
• Texas Manufacturing Outlook Survey Meanwhile, Texas manufacturing activity cooled slightly, with activity still expanding but at a slower rate. The general business activity index read 34.9, which was slightly lower than April’s reading, while prices accelerated in May. Expectations about future business conditions continued to trend high.
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