Following the precipitous losses brought on by the pandemic, the U.S manufacturing sector is now facing a surge in demand, and with this industrial companies are confronting a host of challenges, from a persistent labor shortage and high prices to low inventories of critical materials.
So how are manufacturers faring amid all of this turmoil and what is the outlook for the future?
Today, we’re exploring the manufacturing business conditions for the month, compiling key takeaways from the month's most ciritical reports on output, labor, new orders, optimism and regional activity.
Manufacturing Output Sinks in February as Shortages & Bad Weather Plague Sector
Following several months of gains, U.S. industrial production sank 2.2% in February, according to the latest report from the Federal Reserve, released March 16th.
Taken alone, manufacturing output declined 3.1%, while mining fell 5.4%, and utilities advanced 7.4%. The Fed pointed to February’s extreme weather events in the U.S. South as contributing to the fall in output, particularly in the petrochemical and oil industries.
Shortages in essential materials also contributed to the decline in output for manufacturing, with much of the decrease in output felt in the automotive sector, which is facing a major shortage in semiconductors. Steel is also in short supply. Prices for steel have now have a 13-year high, while unfilled orders for steel in the fourth quarter of 2020 were at their lowest level in five years.
Related: One-Stop Guide to Finding U.S. Steel Suppliers
Capacity utilization in manufacturing fell 2.3% in February to 72.3%.
Taking a closer look at the Fed’s manufacturing data, durable goods fared slightly better than non-durable goods, with the latter sinking 3.7% and durable goods falling 2.6%. Most durable goods sector saw a decline in output, with the exception of primary metals and aerospace and miscellaneous transportation equipment, each of which rose 0.8%.
Unlike durable goods, all industries in the non-durable goods category saw losses, which were heaviest in chemicals (- 7.1%) and petroleum/coal products (-4.4%) These declines were almost entirely attributable to severe weather, according to the Fed. Notable losses were also seen in printing & related support activities (-1.8%) and food products (-1.7%).
U.S. Manufacturing Employment Rebounds in February
After shedding 10,000 jobs at the start of the year, U.S. manufacturers began hiring again in February, with the sector adding 21,000, for a net gain of 11,000 so far in 2021.
Job losses were overwhelmingly seen in durable goods manufacturing (+17,000), while non-durable goods added 4,000 jobs. On the durable goods side, transportation equipment added 9,700 jobs, machinery gained 3,800. Miscellaneous durable goods manufacturing and electrical equipment & appliances also added jobs, up 2,800 and 2,400 jobs, respectively.
In non-durable goods, miscellaneous nondurable goods led gains, with that industry up by 4,100 jobs. Plastics and rubber added jobs (+3,000) as did apparel (+2,400).
For the first time in several months, food manufacturing lost jobs, down 3,100 in February, while printing/related support activities also lost jobs, down 1,700.
Despite the lukewarm hiring in February, A separate Labor Department report issued this month found that U.S. manufacturers are still looking to hire, with the sector facing more than a half million unfilled positions. The Job Openings and Labor Turnover Survey (JOLTS), issued March 11th, found that manufacturing job openings hit a high of 515,000 in January – a level not seen since October when openings reached 545,000. This is compared to a 17-year average, measured between the year 2000 and 2017 in which openings averaged 273,000.
This suggests that in addition to shortages of critical materials, manufacturers are also facing a labor shortage, which may be also be contributing to the decline in output.
Manufacturing Activity Surges to 3-Year High
The monthly manufacturing activity report released by the Institute for Supply Management provides some additional insight into demand, output and employment.
The ISM’s manufacturing activity index hit a three-year high in February, coming in at a robust 60.8%--its strongest level since February 2018.
New orders continued to surge in February, rising 3.7% to 61.1% -- the ninth straight month of increased orders, with demand strongest in paper products, wood products, primary metals and textiles.
Related: Weekly Rundown of High-Demand Industrial Products & Services
Optimism among executives also reached a new high, with five optimistic comments for every one cautious comment. However, many executives noted labor and supply shortages were making it difficult to fulfill new orders. Said one respondent in the primary metals industry, “We have seen our new-order log increase by 40 percent over the last two months. We are overloaded with orders and do not have the personnel to get product out the door on schedule.”
Interestingly, the ISM’s production index also surged in February, contrary to the Fed’s output report for manufacturing. The ISM’s production index rose 2.5% to 60.7%-- and remains well into expansion territory. Output advances were led by paper products, textile mills and primary metals, according to the ISM.
Regional Surveys Point to Accelerated Growth, But Challenges Remain
• Empire State Manufacturing Survey:
Manufacturing is booming in the New York region, according to the most recent Empire State Manufacturing Survey. The survey, conducted between March 2nd and March 9th, found that factory activity in the region hit 17.4 – its highest level since the summer of 2020. New orders, shipments and employment all posted gains, while optimism climbed.
34% of executives responding to the survey indicated improving business conditions, while 17% reported worsening business conditions – a slight improvement over February. Notably, the survey’s shipments index skyrocketed 17 points to a level of 21.1, which the Fed reports is the highest the level has been since the beginning of the pandemic.
• Kansas City February Manufacturing Survey.
Factory activity in the 10th district (encompassing Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and Western Missouri) accelerated in February, with activity levels climbing to 24 last month. This is compared to the level of 17 reported in January and 14 reported in December. The Fed’s composite index encompasses a wide range of metrics, such as production, new orders, employment, and supplier delivery times. The report noted that growth was led by durable goods industries. February’s reading was additionally notable in that it was the first time the sector posted a year-over-year gain since February of 2020.
• Fifth District Survey of Manufacturing Activity (Richmond Fed)
Manufacturing activity in the 5th District, which includes Maryland/D.C.; North Carolina, South Carolina, Virginia and most of West Virginia, held steady in February, with the composite index remaining at 14—the same level as reported in January. Survey participants reported being optimistic about future business conditions, though many noted a shortage of skilled workers. Vendor lead time, which had hit a 25-year high of 39 at the start of the year, advanced further to 46 in February.
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