The Big Picture Report on U.S. Manufacturing Business Conditions (August 2021)

Above: Mercedes-Benz U.S. International Plant located in Tuscaloosa County, Alabama

The most recent report on U.S. manufacturing activity, released August 1st, found that the supply chain bottlenecks that have plagued the U.S. manufacturing sector amid heightened demand, seem to be abating. So what do the latest numbers suggest? Today, we’re delivering the latest insights from the month’s most critical manufacturing reports, covering manufacturing activity, output, labor and regional trends.

Executive Summary

• Manufacturing output rebounded strongly, led overwhelmingly by the auto industry.
• Factory job openings have hit a new record at 869,000.
• Manufacturing activity reached its 14th straight month of expansion. Prices eased after hitting a 42-year high in July. Early data suggests supply chain bottlenecks may be improving.
• Companies continue to note struggles with high prices, supply shortages, longer lead times, and lack of skilled workers.
• Regional surveys point to expanded manufacturing activity across the board. Despite cooling prices reported in the ISM survey, many manufacturers from regional reports expect prices to increase in the coming months.

Manufacturing Output Rebounds Strongly in July

U.S. industrial output rose 0.9% in July, according to the latest report from the Federal Reserve, while , manufacturing output rose 1.4%, advancing at the fastest pace since March of this year.

Looking at year-over-year data, industrial production climbed 6.6% from July 2020, while manufacturing output rose 7.4% year-over-year.

Meanwhile, capacity utilization in manufacturing rose 1.1% in July, hitting a level of 76.6%. Plastics and rubber products led the way, with capacity utilization in that industry hitting 83.5%, followed by paper products, with 83.4%. Furniture and machinery also registered high capacity utilization.

Taking a closer look at the Fed’s manufacturing data, output gains were largely led by the the auto industry, with output in that sector rising 11.2% in July. Other durable goods industries revving up production included wood products, up 2.4%; machinery, up 1.9% and miscellaneous durable goods manufacturing, up 1.5%. Output in durable goods overall rose 2.4%.

On the non-durable goods side, gains were led by plastic and rubber products, up 2%, followed by textile and product mills, up 1.7%. Overall, non-durable goods output rose 0.3%.

Manufacturing output losses over the month were scarce, limited to petroleum products, down 0.6%, and fabricated metal products, down 0.6%.

Labor Trends in Manufacturing Reveal Stark Contrast Between Hiring, Job Openings

Manufacturers added another 27,000 jobs in July, while economy overall added 943,000 jobs, while the number of unfilled manufacturing jobs stood at 869,000 (as of June 2021) – a record high.

July’s manufacturing job gains were spread across multiple industries and were strongest in durable goods manufacturing, which added 20,000 jobs. Machinery added the most jobs, with 6,800 positions added. Fabricated metals added 4,500 jobs, while primary metals added 1,900. In non-durable goods, food processing companies, chemical industries, and textiles all added jobs.

The industries that struggled to find workers included transportation equipment, down 1,500; semiconductors and electronics components (-800); electronic industry; apparel (-700) and paper products (-500).

Manufacturing Activity Report Sheds Light on Supply Chain Bottlenecks

Meanwhile, the Institute for Supply Management reported that the U.S. manufacturing sector reached its fourteenth straight month of expansion in July, while supply chain bottlenecks appear to be improving. The ISM reports U.S. manufacturing activity registered 59.5% in July, easing 1.1% and still far into expansion territory.

Optimism amongst manufacturing executives remained high, while Timothy Fiore, Chair of the ISM Committee had this to say: “supply and demand dynamics appear to be moving closer to equilibrium for the first time in many months.”

Prices, which hit a 42-year high in June, eased back 6.4%, which comes as hopeful news to manufacturers, who have been contending with elevated prices for months now. Employment, which had posted a contraction in June, rebounded in July to an expansionary reading of 52.9%, suggesting that manufacturers may be hiring at a faster clip.

Manufacturer comments, however, remained focused on shortages of supplies and labor, high prices and strong demand. One executive in the fabricated metals sector reported, “Strong operations, (with) new programs, orders and launches. Continue to have hiring difficulties and are unable to fill production and salaried jobs (due to) a lack of candidates. Raw materials are still in short supply, with longer lead times.”

Seventeen of eighteen industries included in the survey reported growth for July, led by furniture, printing and related support activities, and apparel, leather & allied products.

Regional Surveys Point to Continued Expansion

• Empire State Manufacturing Survey: On the tails of a record-setting expansion reported in July, manufacturing activity eased back slightly in August in New York State. This is according to the latest Empire State Manufacturing Survey conducted between August 2nd and August 9th. The survey found the general business conditions in the region fell 25 points, hitting a level of 18.3 (still in expansion). The prices index continued to surge, with prices paid holding steady at 76.1, and prices received climbing 7 points to an all-time high of 46.

Optimism, which was already high amongst executives, rose a few more notches, climbing seven points to 46.5. Manufacturers are expecting significant increases in employment and prices in the months ahead.

• Kansas City Manufacturing Survey: Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) expanded strongly in July. The survey’s composite index hit a reading of 30, up from 27 in June and 26 in May. The expanded activity continued to be driven by durable goods growth, with primary and fabricated metals, computer and electronic products, and transportation equipment posting the strongest growth. Manufacturers in this region also expect material prices and finished goods prices to increase in the coming 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, expanded slightly in July, edging up one point, from 26 in June to 27 in July. Manufacturers in the region reported difficulty in finding skilled workers, despite raising wages, and many expect the labor shortage to persist for the next six months. Prices continued to rise and manufacturers in this region expected price growth to slow over the next year.

• Texas Manufacturing Outlook Survey: Meanwhile, Texas manufacturing activity expanded briskly in July, continuing along the same above-average pace as reported in June. Employment, new orders, capacity utilization, and shipments were all elevated in July. Prices were high once again for the region but cooled slightly from June’s record-high prices.

The survey’s “special question” section revealed that 35% of manufacturers in the region are reporting increased revenues, while 68% are looking to hire or recall workers (up from 60% last month).66.7% of manufacturers reported lack of available applicants as among the main obstacles to staffing open positions, whereas 47.7% cited generous unemployment benefits, and compensation 36.8%.

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