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As we transition into July, several economic indicators concerning June manufacturing and employment have been released by various government agencies. This report summarizes findings regarding June manufacturing activity using regional manufacturing surveys conducted by several of the Federal Reserve Banks and employment data for manufacturing as reported by the Bureau of Labor Statistics (BLS).
Regional manufacturing surveys
Regional manufacturing surveys conducted by the Federal Reserve Banks of New York, Dallas, Richmond and Philadelphia suggest that June manufacturing activity substantially rebounded from May levels, but point to an uneven recovery. For example, across three Fed districts that report detailed data on percent of firms reporting increases and decreases, while more firms reported an increase in new orders relative to decreases in June, the number of firms reporting decreased new orders is still elevated as shown below.
Source: New York, Dallas, Richmond, and Philadelphia Federal Reserve surveys
Though the momentum for new orders and production was positive, this has yet to translate to positive momentum for employment. This can be seen plotting the diffusion indices — calculated as the percent of firms reporting an increase less those reporting a decrease — for shipments (as a proxy for production) and employment. The shipments index exceeds zero, indicating more firms reported an increase in shipments relative to a decrease. However, the employment reading is -3.6, suggesting that while the number of firms reducing headcounts slowed from May, manufacturers are not aggressively hiring. This is consistent with research in economics showing that firms are hesitant to make investments during periods of elevated uncertainty.
Source: New York, Dallas, Richmond, and Philadelphia Federal Reserve surveys
Special questions asked on the June Dallas survey shed light on manufacturers’ anticipated time for revenues to return to pre-COVID levels. As shown below, roughly 16% of firms reported higher revenues, whereas 13% reported unchanged revenues. Roughly 50% of firms reported that revenues were not expected to reach pre-COVID levels for at least seven months. This uncertainty about revenue returns corroborates the finding that employment is rising more slowly than shipments and new orders.
Source: Dallas Federal Reserve survey
Bureau of Labor Statistics manufacturing employment
Preliminary employment data for June 2020 suggests manufacturing employment is rebounding as lockdowns have eased, but employment is substantially below June 2019 levels. Examination of durable goods sectors reveals that only computer and electronic product manufacturing has seen an increase in employment on a year-over-year basis, up approximately 1.1%. This isn’t surprising given the robust demand for electronic products created by the need to conduct operations remotely (e.g., network equipment, mainframes, etc.) Of the 10 durable goods sectors for which the BLS reports monthly employment statistics, 495,500 jobs, or 6.1%, have been lost relative to June 2019. The hardest-hit durable goods sector for job losses on a percent basis was primary metals, with June 2020 employment being 12.4% below June 2019 levels. The largest durable goods sector by employment in June 2020, transportation equipment manufacturing, has also been hard-hit, with employment down 8.9% from June 2019 levels. These data point to an uneven recovery thus far in the durable goods production sectors, which is consistent with the Federal Reserve’s regional manufacturing surveys. The good news is that durable goods employment for June 2020 was up 289,700 jobs from May 2020, or a 4% gain.
Source: Bureau of Labor Statistics manufacturing employment
In contrast, employment declines in the nondurable goods manufacturing sector have been less severe. As shown below, for the three largest nondurable goods manufacturing sectors (food manufacturing, chemical manufacturing, and plastics and rubber products), year-over-year employment declines have been 2.9%, 1.9% and 2.5%, respectively. Of the nine nondurable goods sectors for which the BLS provides monthly data, employment was down 222,700 jobs on a year-over-year basis, or 5%. On the positive front, June saw the creation of 49,900 jobs from May, or a 1.2% gain. With this being said, sectors such as apparel manufacturing, printing and support activities, and textile mills have shown particularly pronounced job losses.
Source: Bureau of Labor Statistics manufacturing employment
Conclusion
Manufacturing activity improved substantially in June from May as states eased lockdowns. The recovery has been uneven, with only one sector (computer and electronic product manufacturing) showing year-over-year employment gains. Durable goods manufacturers have shed more jobs on a year-over-year basis, both in absolute and percent terms. While further recovery is expected in July, the magnitude is difficult to predict due to the resurgence of confirmed COVID-19 cases.