IndustryNet Blog

Economic Indicators for U.S. Manufacturers (June 2024 Roundup)

Posted by IndustryNet on Tuesday, June 25, 2024

 Economic Indicators for U.S. Manufacturers

Economic reports released in the month of June present a mixed but cautiously optimistic picture. Manufacturing output is rising, and the sector has seen employment gains and easing price pressures. However, capacity utilization remains below its long-term average, and certain demand indicators suggest ongoing challenges.

Economic Indicators for U.S. Manufacturers in June: Executive Summary

• Manufacturing output rebounded in May, advancing roughly one percent, though capacity utilization remains below its long run average.
• Overall manufacturing activity is still muted, with the ISM reporting contraction in the sector for a second straight month. However, employment and production all saw gains.
• Positive employment numbers were also reported by the Labor Dept, which tracked 8,000 new jobs added to the sector.
• The PPI (Producer Prices Index) finds prices paid declined to their lowest level since October of 2023.
• The latest Census Bureau data finds new orders for manufactured goods and shipments inched up 0.7%, while unfilled orders rose 0.2%.
• Regional surveys suggest a stabilization of industrial activity, though many regions are still experiencing contraction.

Let’s explore the latest details from the most critical economic reports released in the month of June: 

Manufacturing Output on the Rise

Manufacturing output rebounded 0.9% in May, after easing 0.3% in April, according to the Federal Reserve’s Industrial Production and Capacity Utilization report released June 18th.

Meanwhile, the index for mining increased 0.3%, while the index for utilities rose 1.6%. Overall industrial production advanced 0.9%, according to the latest report.

The report also states that although manufacturing capacity utilization is now at 77.1%, running 1.1% below its long-run average.

Related: How Outsourced Industrial Prospecting Can Help Your Manufacturing Company Survive Uncertain Times

Taking a look at the industry groups, May’s manufacturing output increases were seen most sharply in petroleum and coal products, up 2.8%, followed by wood products (+2.6%); and machinery (+2.3%).

Other manufacturing sectors increasing output included chemicals (+1.8%); textile mills (+1.8%); computers and electronic products (+.8%); and fabricated metal products (+.8%).

These gains were offset marginally by losses in furniture manufacturing (-2.6%); printing and related support activities (-1.5%); and miscellaneous manufacturing (-.9%).

Looking at year-over-year losses and gains in output, computer & electronic products grew the most, posting a 5% increase in output, while apparel and leather fared the worst, down 12.5%

U.S. Manufacturing Activity Stalls on Demand, Backlogs

Following a brief expansion in March of this year, U.S. manufacturing remains mired in contraction according to the Institute for Supply Management, with activity in the sector edging down 0.5% to a reading of 48.7% in May (any reading below 50 indicates contraction).

Softening demand continued to be a key factor, with the New Orders Index dropping 3.7% to a reading of 45.4%. Meanwhile, backlogs grew, with the Backlog of Orders Index falling 3% to a reading of 42.4%.

However, production continued to expand, albeit at a slower pace. The ISM’s Production Index settled at 50.2%--1.1% lower than April’s reading. Employment also grew substantially, with the Employment Index rising 2.5% to a reading of 51.1%.

Prices, while still elevated, eased from April’s high of 60.9% to 57% in May.

Of eighteen industries tracked, seven reported growth in the month of May, led by printing and related support activities; petroleum and coal products; paper products; and textile mills.

More on Employment Gains

Echoing the employment gains reflected in the ISM report, the U.S. Depart of Labor reports hiring in the manufacturing sector accelerated in May, with manufacturers adding another 8,000 jobs, adding to the 8,000 new jobs reported in April.

Meanwhile, the Job Openings and Labor Turnover (JOLTS) survey, shows that unfilled positions in U.S. manufacturing dipped slightly, with the number of open positions at 510,000.

A closer examination of the data finds the majority of the gains were led by non-durable goods, which added 10,000 jobs, while durable goods manufacturing lost 2,000 jobs.

Specific sectors adding jobs included transportation equipment, which added 4,700 workers, followed by chemicals, food manufacturing, and wood products.

Losses were led by miscellaneous non-durable goods manufacturing, which shed 2,900, followed by furniture, which lost 2,200 jobs. Electrical equipment, nonmetallic minerals, and fabricated metals also shed jobs in May.

Related: Selling in a Downturn: Opportunities & Best Practices

Prices Ease to 8-Month Low

In May, the Producer Price Index (PPI) for final demand goods saw a significant decrease of 0.8%, marking the largest drop since October 2023. This decline was primarily driven by a 4.8% fall in final demand energy prices.

Additionally, prices for processed goods for intermediate demand decreased by 1.5% in May, the most significant decline since December 2022. This drop can be largely attributed to an 8.0% reduction in processed energy goods prices.

The index for unprocessed goods for intermediate demand also decreased by 1.8% in May, led by a 6.6% fall in unprocessed energy materials prices. On the other hand, prices for services for intermediate demand edged up by 0.1% in May, continuing a trend of modest increases.

These economic indicators suggest a downward pressure on costs for energy and processed goods, which could impact manufacturing input costs and pricing strategies. The slight increase in service prices suggests a mixed effect on the overall cost structure for manufacturers.

Census Bureau Reports Continued Gains in Shipments and Orders

The U.S. Census Bureau’s Monthly Full Report on Manufacturers’ Shipments, Inventories, & Orders for June 2024 presents a mixed but cautiously optimistic picture of the manufacturing sector. New orders for manufactured goods increased by $4.3 billion or 0.7 percent to $588.2 billion, marking an uptick for three consecutive months. Shipments also saw a rise for three consecutive months, increasing by $5.9 billion or 1.0 percent to $590.2 billion.

Despite these positive trends, the report indicates challenges in other areas. Unfilled orders, although up for forty-five consecutive months, showed a modest increase of $2.8 billion or 0.2 percent to $1,400.6 billion. Inventories, which have been up four of the last five months, increased slightly by $0.9 billion or 0.1 percent to $858.3 billion. The inventories-to-shipments ratio was 1.45, down from 1.47 in March, suggesting a slight improvement in inventory management. Overall, the report suggests a steady but slow improvement in the manufacturing sector, with challenges remaining in unfilled orders and inventories.

Related: Selling in a Downturn: Opportunities & Best Practices

Regional Manufacturing Activity Muted, but Optimism Grows

Manufacturing Activity Declines at a Slower Rate in New York Region

Manufacturing in New York improved modestly in June, though the region’s manufacturing remains in contraction, according to the latest Empire State Manufacturing Survey from the Federal Reserve Bank of New York. Despite a ten-point increase, the general business conditions index remained in negative territory at -6.0. The survey, collected between June 3 and June 10, indicates steady new orders and a slight rise in shipments. Additionally, it reports a slight shortening in delivery times and stable supply availability. Labor market conditions were weak, with both employment and hours worked on the decline. Notably, the pace of input and selling price increases has slowed for the second consecutive month. However, there is a sense of optimism for the future, as the six-month outlook has improved to its highest level in over two years.

Manufacturing Activity in the Philadelphia Walks Back Gains 

The Philadelphia Fed Manufacturing Index for June indicates a modest dip in general activity, with the diffusion index for current general activity decreasing slightly to 1.3, marking the lowest level since January. Despite this, 24% of firms reported increases in general activity. The employment index suggests a continued decline in employment levels, albeit at a slower rate, rising to -2.5.

Price indexes reflect ongoing inflationary pressures, with the prices paid index climbing to 22.5 and the prices received index reaching 13.7. Future outlooks reveal tempered expectations for growth, evidenced by the future general activity index falling to 13.8, its lowest since February. The report paints a picture of steady manufacturing activity with cautious optimism tempered by employment and pricing challenges.

Modest Improvement for Manufacturing Activity in South Atlantic Region

In May 2024, the Richmond Fed Manufacturing Index, which covers the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia, indicated a slight improvement in the Fifth District’s manufacturing activity, moving from a negative value of −7 in April to a neutral 0. This change was driven by a significant increase in shipments, which jumped from −10 to 13, while new orders saw a modest rise from −9 to −6. However, employment experienced a downturn, worsening from −2 to −6.

Despite these mixed results, firms maintained a stable outlook on local business conditions, with a slight decrease in optimism reflected by the index moving from 6 to 3. Expectations for future local business conditions also dipped, with the index falling from 16 to 6. The report further noted that firms continued to face declining backlogs and vendor lead times, and they anticipated a slight increase in price growth over the coming year.

Kansas City Region Manufacturing Contracts

The latest report from the Kansas City Fed Manufacturing Index, which encompasses Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and parts of New Mexico and Missouri, reveals a continued decline in Tenth District manufacturing activity. The composite index, which is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes, fell to -8. This decline in activity was seen in both durable and nondurable goods, with food, metals, electrical equipment, and paper manufacturing driving the decreases.

In addition to these insights, the report also highlighted some interesting trends in workforce training and hiring. Two-thirds of firms have increased resources for training workers who lack necessary skills, with 24% significantly increasing their resources. When asked about their top hiring priority for the next six months, 41% reported that hiring entry-level workers is their biggest priority, followed by mid-level workers at 48%. This suggests a focus on building a strong base of talent to drive future growth.

Texas Manufacturing Edges Out of Contraction

The Texas Manufacturing Outlook Survey for June 2024 reveals a stabilization in the state’s manufacturing activity, with the production index slightly rising to 0.7 from a previous -2.8, indicating a halt in the output decline observed over the prior period. Business executives reported mixed signals in other areas of manufacturing; for instance, the new orders index showed a marginal improvement to -1.3, while the capacity utilization index decreased to -4.8. 

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