Multiple reports out this month suggest the U.S. manufacturing sector is still on the mend, with key metrics showing improvement. Notably, the Small Business Pulse Survey, released by the Commerce Department, finds that U.S. manufacturers are experiencing significantly less negative effect from the pandemic, with 27.8% experiencing a large “negative” effect Oct. 4th-12th, compared to 46.8% at the start of the pandemic.
Industrial companies appear to be cautiously optimistic and hiring in the sector has improved in September, yet manufacturing output has eased back into contraction.
Meanwhile, unfilled manufacturing positions have hit a 13-month high.
Activity on the industrial marketplace IndustryNet, which helps buyers find suppliers in the industrial world, continues to show increased search volume over last year for U.S. parts, products and services, with searches for everything from domestic steel and chemicals to conveyors and printing trending up significantly (you can follow our weekly search insights here).
Overall, the U.S. manufacturing sector appears to be edging toward a full recovery, but the industry is still far short of pre-pandemic levels in terms of output and employment.
Today, we’re going to dig into the month’s reports to bring you the big picture look at manufacturing business conditions.
Manufacturing Output Declines After Four-Month Winning Streak
U.S. Industrial production, which had risen sharply in the summer months, eased back for a second month in September, according to the latest report from the Federal Reserve.
September’s industrial production report, out in mid-October, found output declined for the first time in four months, falling 0.6% in the month of September. The Industrial Production and Capacity Utilization report, released monthly by the Federal Reserve, is a composite index that includes manufacturing, mining and utilities.
Taken alone, manufacturing output declined 0.3% in September, while utilities dropped 5.6% and mining rose 1.7%.
Overall, the reading for industrial output in September was 7.1% below February’s pre-pandemic level, though the sector has regained more than half of the historic losses seen between February and April.
Taking a closer look at the Fed’s manufacturing data by subsector, output declines were spread out fairly evenly across all sectors, somewhat different from previous months in which wild swings in the auto sector largely determined the manufacturing output reading.
In September, the auto sector still posted the largest decline, with motor vehicles and parts down 4%. This was followed by petroleum and coal products, down 3.5%; computer and electronic products (-2.6%); apparel and leather (-2.1%); non-metallic mineral products (-1.2%) and miscellaneous manufacturing (-1%).
Meanwhile, some key sectors posted notable gains over the month. These included aerospace & miscellaneous transportation equipment, up 4.6%; textile & product mills, up 4.5%; primary metals, up 1.7%); fabricated metal products, also up 1.7%; and printing/related support activities, up 1.3%.
Taking a year-over-year look, many sectors have posted double-digit losses over the year, including primary metals (-17.8%); petroleum and coal products (-16.9%); aerospace (-14.5%) and printing/related support activities (-13.7%).
Computer and electronic products has remained an aberration to this downward 12-month trend, with output up 1.7% on a year-over-year basis. This is followed by the motor vehicles and parts sector, which demonstrated a negligible half percent loss in output compared to September 2019.
Manufacturing Hiring Picks Up
Last month, we reported that hiring in the U.S. industrial sector remained stuck in neutral, with the Labor Department reporting just 29,000 new hires in manufacturing for the month of August. This was roughly the same as July’s 26,000 new jobs, and a far cry from June’s 356,000 new jobs.
In September, however, the employment situation improved somewhat, with the manufacturing sector adding roughly double the number of jobs.
Manufacturers added 66,000 jobs in September, according to the Bureau of Labor Statistics, though notably the sector is still 647,000 jobs short of pre-pandemic employment levels.
Job gains were mostly led by the transportation equipment industry, which added 15,300 jobs, as well as machinery, which added 13,800.
Similar to the industrial output report, most sectors reported losses on a year-over-year basis, except for electronic products, which reported more jobs in September 2020 than September 2019.
Interestingly, job openings in manufacturing hit a 13-month high, according to a separate report released by the Bureau of Labor Statistics. The most recent Job Openings and Labor Turnover Survey (JOLTS), found there were 460,000 unfilled positions in manufacturing in August, which is the highest number of job openings since July of 2019.
Manufacturing Activity Eases Back
Meanwhile, the Institute for Supply Management found continued expansion in the U.S. manufacturing sector in September, though growth was a little slower than August.
U.S. manufacturing activity edged down 0.6% in September, hitting a level of 55.4%. Any reading over 50 indicates expansion, so although the rate of expansion slowed somewhat, the sector is still solidly in growth mode.
The slowdown was largely due to the new orders index, which took a step back in September after surging to a 16-year high in August. However, new orders activity is still in robust territory at 60.2%.
Among other surprises in the ISM’s September report was a rosier employment index, which saw the most significant increase in growth among the report’s key metrics, up 3.2% in September.
Employment, according to the ISM, is still in contraction, but is a good bit stronger than reported over the summer, now skirting expansionary levels at 49.6%.
Among some of the more positive comments from respondents to the survey, one executive in the transportation equipment industry said, “Business is booming, and the supply chain has been caught off guard. We are working closely with our suppliers to ensure supply and try to control costs.The resin industry, along with plastics, is driving cost increases and scarce availability.”
New York Fed Survey: Manufacturing Activity & Optimism on the Rise
The Empire State Manufacturing Survey, released by the Federal Reserve, measures business conditions for the influential New York region.
This data, collected between the 2nd and 9th of October, found that conditions for manufacturers expanded in October, but at a slower rate than in September.
The Fed’s manufacturing index fell seven points to a new reading of 10.7. 36% of businesses responding to the survey indicated that business conditions had improved, while 25% reported worsening conditions.
October ranked as the fourth consecutive month of expansionary readings for the sector, though activity seemed to chill in starting in August.
The Fed’s New Orders index rose 5 points and now sits at 12.3%, while shipments rose 4 points to 17.8.
The optimism index, one of the most-watched metrics released by the Fed, fell slightly in October, after rising for two consecutive months. That index fell 8 points to a still rosy 32.8.
This would generally indicate that manufacturers are optimistic about future business conditions, but not as optimistic as they were in September, when the index hit 40.3.
Notably, 35 of manufacturers indicated plans to hire in the coming months, while capital expenditures and technology spending lagged behind, with those indices falling to 11.9.
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