Manufacturing Update: All Indicators Healthy Through 1H 2022

The IP index is a gauge of output from factories, mines and utilities. Figure 1 shows the three-month moving average (3MMA) of the IP index since 2000. (We use the 3MMA calculations here to smooth out some of the monthly variability.) As a 3MMA, the IP index reached a 10-year low of 87.7 in June 2020, recovering nearly each month since then. The 3MMA through May is 104.7, up 5.5% over the same period last year and the highest measure in the Federal Reserve’s 103+ year history.

Manufacturing Capacity Utilization

Manufacturing capacity utilization through May was measured at 80.2% as a 3MMA, nearing a 2-year streak above recessionary territory, and the highest 3MMA rate recorded since July 2000. The rate had hovered around 75% for most of the 2010s. It dipped in April 2020 to reach a low of 66% in June 2020 (Figure 2).

New Orders for Durable Goods

New orders for durable goods, an early indicator of consumer and business demand for US manufactured goods, continues to recover from the 2020 shock (Figure 3). New orders are at $265.6 billion as a 3MMA through May 2022, up 5.9% over the same period in 2021. Back in January of this year, we saw a 3MMA of $273.6 billion, the highest level in our history dating back to 1992. Recall the 3MMA had dropped by 23% from February through May 2020, reaching a 10-year low of $188.4 billion.

New Orders for Manufactured Products

The growth rate of new orders for manufactured products as reported by the Census Bureau was slightly negative for most of 2019, then declined sharply from March to July 2020 (Figure 4). On a 3MMA basis, factory orders have increased each month since then, reaching $536.6 billion in May. This is up 13.8% compared to levels one year ago, and also the highest level in our 30-year data history.

New Orders for Products Manufactured from Iron and Steel

Within the Census Bureau M3 manufacturing survey is a subsection for iron and steel products. Figure 5 shows the history of new orders for iron and steel products since 2007 as a 3MMA. The 3MMA year-over-year growth rate, which reached negative 27.8% in May 2020, is now at positive 16.2% as of May. The 3MMA new order level is now at $12.3 billion, the highest seen since February 2012. Back in June 2021, the 3MMA year-over-year growth rate reached a multi-year high of 49.0%, the highest rate since July 2010.

Inventories of Products Manufactured from Iron and Steel

Inventories of iron and steel products broke their multi-month decline streak in November 2020, rising each month thereafter. The latest iron and steel inventory levels totaled $23.0 billion on a 3MMA basis in May, up 20.8% compared to the same period the year prior (Figure 6). This is now the highest 3MMA measure seen since October 2008, and the seventh highest year-over-year change seen in the last decade.

The ISM Manufacturing Index

The Institute for Supply Management® Manufacturing Index is a diffusion index. An index value above 50 indicates that the manufacturing economy is expanding. As Figure 7 shows, the index on a 3MMA basis was in contraction territory from September 2019 through July 2020, peaking in May 2021 at 62.2. Now standing at 54.8 through June, the 3MMA index is down 1.4 percentage points from the month prior and 7.4 percentage points from the May peak, but remains at a strong level historically.

“The U.S. manufacturing sector continues to be powered — though less so in June — by demand while held back by supply chain constraints. … Companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain,” said ISM business survey committee chairman Timothy Fiore. “Sentiment remained optimistic regarding demand, with three positive growth comments for every cautious comment. Panelists continue to note supply chain and pricing issues as their biggest concerns.”

By Brett Linton, Brett@SteelMarketUpdate.com