The United States’ manufacturing sector has grown for the ninth straight month in a row. This glowing trend suggests the pandemic recovery is picking up steam, with persons, households and businesses investing more on long-term physical buys.
In February 2021, the Purchasing Manufacturers Index (PMI) clocked in at 60.8— the highest rate of expansion since early 2018. PMI data is based on a survey of manufacturing CEOs. For this index, a data point above 50 shows the sector is getting bigger, while a number under 50 means it’s shrinking.
The fact that the sector is growing faster than in the beginning of the year is an important sign that for some businesses, things are getting better, even as other sectors are left behind in the pandemic recovery.
“Manufacturing is benefiting from strong consumer spending and strong business investment.” says Gus Faucher, Chief Economist at PNC Financial Group. “People are still uncomfortable going out so the recovery we’ve had so far has been much more in consumer purchases of goods rather than in consumer purchases of services.”
The large, steady increase in demand for manufactured products is being pushed by several factors, including increased spending by consumers on items like clothes and electronic appliances. PMI shows that production and demand for textiles and appliances rose significantly in February.
Businesses are also investing more money on manufactured goods. In January alone, the commercial aviation industry increased spending by nearly 400%. And the transportation sector as a whole spent over $85 billion on new orders of manufactured items lasting 3 years or more. While cars and other automobiles account for the majority of the new spending, demand for commercial and military aircrafts and aircraft parts increased significantly, causing the surge in demand for manufactured products.
The spending increase has pushed businesses to hire employees more quickly than in January. But employment in the sector is nowhere near bouncing back from the crushing blow of the COVID-19 recession. According to Bureau of Labor Statistics data, the manufacturing sector lost 561,000 jobs in total since last February and cut 17,000 jobs in January 2021. While manufacturing companies only added 21,000 employees in February of this year, a total increase of 42,000 jobs within the past 3 months.
Lack of stable employment during COVID-19 and other challenges have caused production shortages that make it difficult for the sector to keep up with increased spending.
“Demand is returning but production is slower to pick up due to various issues such as employees not being able to be at the factory,” says Stephen Gallagher, Chief Economist at Société Générale. “Deliveries are also taking a long time to reach business customers. Ports are backed up, mail is slower and delivery systems are challenged right now.”
But despite these issues, the manufacturing sector is expected to see significant growth in the coming months.
“U.S. Manufacturing is booming.” says Gallagher, “Inventories are very low and companies are trying to replenish these inventories, creating a very healthy backdrop for manufacturing in the short term.”
Biden’s $1.9 Trillion dollar stimulus bill is also expected to pass, and with more money in people’s pockets, demand for manufactured products is expected to increase further, maintaining growth within the sector.