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

Posted by IndustryNet on Monday, December 20, 2021

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December’s manufacturing reports point to mostly positive developments in the sector, with optimism for 2022 continuing to gain traction.

Today we’re exploring the key takeaways from the month’s most vital manufacturing business reports, exploring the latest data on output, labor, prices, regional activity, shipping, inflation and more.

Executive Summary

• Unfilled positions in U.S. manufacturing pass one MILLION for the first time ever.
• Manufacturers added jobs at a slower rate in November.
• Manufacturing capacity utilization hit a 3-year high, while output soared to its highest level since December 2019.
• Optimism among manufacturers nationwide continued to gain steam, more than doubling over last month.
• Regional surveys all show expansion in manufacturing has held steady, with the Texas outlook survey posting the strongest growth.
• Continued early signs of relief in inflation, with a key shipping index falling another 30% in December.
• New developments in the container logjam create a second shipping chokepoint.

Manufacturing Output at 2-Year High

U.S. industrial production rose for a second straight month in November, edging up 0.5% on the tail of October’s 1.5% increase, according to the latest report from the Federal Reserve. The Fed reports total industrial production is now at its highest reading since December 2019.

The index for mining rose 0.6%, while utilities declined 0.8%.

Taken alone, manufacturing output rose 0.7% in November, while manufacturing capacity utilization rose 0.5% to 77.8—the reading’s highest level since December 2018.

Manufacturing sectors with the highest capacity utilization include machinery, furniture & related products, paper products, and plastic & rubber products, all of which have a utilization over 80%.

Taking a closer look at the Fed’s manufacturing data, industrial output gains were led by the automotive industry, with motor vehicles & parts up 2.2%. Aerospace and miscellaneous transportation equipment increased 1.6%, as did paper products. Plastic and rubber products increased 1.5%, while textiles and non-metallic mineral products advanced 1.2%.

Output remained stable for most other industries, with most reporting marginal gains. Meanwhile, a handful of industries reported losses in output, including petroleum and coal products, down 1.2% and machinery, down 0.7%.

Inflation & Supply Chain Developments

The Baltic Dry Index (BDI) of global shipping rates and a bellwether indicator for inflation, continues to fall, this month sinking another 30% since early December. The index had peaked in October before falling 50%, suggesting inflation may be easing.

Meanwhile, congestion at the Port of Los Angeles continues to be a hot topic, and despite the Port’s claim that the number of idled containers has dropped 60% since proposing a “Container Dwell Fee” (which, by the way, has been postponed), the Harbor Trucking Assocation reports that containers have just simply been moved to truck yards and other areas, piling up on chassis and creating yet another chokepoint.

Hiring in Manufacturing Loses Steam as Job Openings Pass One Million
job_openingDec2

 

In November, manufacturers added 30,000 jobs -- roughly half the rate hired in October.

Meanwhile, the U.S. economy as a whole added 210,000 positions – roughly half as many jobs added in October.

The latest JOLTS (Job Openings & Labor Turnover) Survey, released Dec 12th also shows job openings in the U.S. manufacturing sector have passed one million unfilled positions for the first time ever.

Industries that added jobs included durable miscellaneous manufacturing (+10,000) fabricated metal products (+7,900); and food processing (+7,400). Gains were offset by losses in the auto industry, which shed 10,000 as well as machinery, which lost 6,000.

Manufacturing Activity Expanding at a Slightly Lower Level

Meanwhile, the Institute for Supply Management reported that activity in the manufacturing sector escalated in November, rising 0.3% to 61.1% in the industry’s eighteenth straight month of expansion . Industrial executives continued to report and materials shortages, shrinking inventories, rising backlogs, and lengthy deliveries.

Prices rose at a slower rate compared to October, falling 3.3%, while commodities such as aluminum, polypropylene, and plastic resins came down in price.

Meanwhile, optimism continued to improve in November, with 10 positive comments registered for every one negative comment, compared to 4 positive comments for every one negative comment reported in October.

Thirteen of eighteen industries surveyed by the ISM reported growth in November, led by apparel, furniture, electric equipment, and machinery.

Regional Surveys

Empire State Manufacturing Survey: After rebounding strongly in November, manufacturing activity in the New York region held steady, with its main business conditions index unchanged at 31.9. The survey reported increases in both shipments and new orders, as well as an uptick in hiring. Delivery times grew longer, while more companies reported plans for capital and technology investments.

The latest survey, collected between December 2nd and December 9th, shows 45% of companies reported improved business conditions this month, while another 13% reported worsening conditions. Meanwhile, executive continued to be optimistic, with the index for future business conditions holding steady at 36.4. More companies were reporting plans for capital investments, with that index up 3 points, while prices cooled off slightly, with the prices paid index falling 3 points.

Kansas City Manufacturing Survey. Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) also held steady in December, with the month’s reading coming in at 24—the same as reported in November, but down slightly from October’s reading of 31.

Comments from the survey reveal that companies are grappling with a resurgence of COVID-related labor disruptions, high prices, and hiring challenges.

The survey’s “special question” section focused on risks for 2022, with a significant number of respondents expecting labor shortages, supply chain shortages and rising prices as the greatest threat to business next year. 70% of respondents planned to increase wages, while many suggested another COVID surge would significant impact their business.

Richmond Fed Manufacturing Survey Manufacturing in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, continued to expand in November, and held steady, with the composite index coming in at 11, compared to October’s reading of 12.

November’s survey found shipments, new orders and employment continued to grow, while vendor lead times worsened. Difficulties in finding skilled workers continued to plague the industry, with respondents expecting this trend to continue over the next six months.

Texas Manufacturing Outlook Survey Meanwhile, manufacturing activity in Texas grew at faster pace in November, with the survey’s key production index increasing 9 points to an above-average reading of 27.4.

Other indexes supported an accelerating manufacturing sector, with new orders up 5 points and shipment indexes up 11. Capacity utilization was also up, rising 6 points and the employment index reached a 7-month high of 27.7.

The survey revealed executives were largely optimistic, with future production index rising 5 points and future general business activity soaring 14 points to 28.6.

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