Manufacturing may be turning around after nearly 2 years in the dumps

The health of the manufacturing sector in the United States is on this week’s economic calendar: Tuesday morning, the Institute for Supply Management will release its monthly manufacturing report on business for September.

That report has not been superhappy reading for the better part of the past two years: It’s reported that manufacturing contracted in 21 of the past 22 months. But some parts of the sector are thriving, and overall, there’s some optimism afoot.

Maybe during the pandemic you bought a stainless steel refrigerator or redid the bedroom? Data suggest you are not quite ready to throw it all out and start again. 

“Demand has been essentially nonexistent for 24, 25 months,” said Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee. Its purchasing manager index in August was 47.2 — anything below 50 is a contraction.

“We’ve been contracting our new order levels. Our backlog has been shrinking for at least 24 months,” Fiore said.

Americans ordered so much stuff during the pandemic that they’re still not ready to buy more big things, and that’s still showing up in manufacturing data.  

Throw on top of that interest rates, which have come down, but from manufacturers’ perspectives, it took a while.

“We’ve been looking for interest rate reductions back in the summertime, and we didn’t get them,” Fiore said.

Sounds grim, but there are areas of manufacturing that are still doing pretty great. 

“A lot of us manufacturing, especially in the electronics area, is aerospace and defense,” said John Mitchell, president of IPC, a global association for manufacturing.

Electronics manufacturing covers a range of sectors, including artificial intelligence and defense.

“We can’t keep up with the needs in that sector, and there’s really a backlog there,” Mitchell said.

Manufacturing might escape the pandemic hangover soon, according to Randy Altschuler, CEO of Xometry, a platform that connects buyers and sellers in manufacturing of all kinds.

“We’re hearing from buyers and suppliers in our marketplace that customers are once again looking to replenish their inventory,” he said.

Another positive? Building buildings, said Ned Hill, professor of economic development emeritus at Ohio State University.

“Anything that has to do with constructing an industrial building is doing really well,” he said.

Those are long-term kinds of contracts, so the manufacturing behind them is in good shape, Hill said. Overall, manufacturing in the U.S. might not be at the top of its game, but it’s not terrible.

“I’m hearing you or Kai Ryssdal going, ‘Eh, OK. Better than mm,'” Hill said.

Took the words right out of my mouth.