Manufacturing is the engine of U.S. economic growth. That’s why, when the Federal Reserve Board hosted a virtual Fed Listens event to discuss the economic recovery from the COVID-19 pandemic, it asked NAM Chief Economist Chad Moutray to share his perspective.
In his remarks, Moutray gave an overview of activity in the manufacturing sector and laid out his expectations for the road ahead. Here are some of the highlights.
A positive outlook: “Manufacturers are experiencing very strong demand as the U.S. and global economy recovers from the steep declines in activity seen last year at the beginning of COVID-19,” said Moutray. “Indeed, the most recent NAM Manufacturers’ Outlook Survey found that 87.5% of respondents were positive about their company’s outlook, which—while down from the three-year high seen in June—remained a healthy figure.”
Concerns on the horizon: “At the same time, manufacturing leaders cited rising raw material costs as their top concern for the third straight quarter, followed closely by challenges with attracting and retaining enough workers, with supply chain disruptions, and with logistics and transportation issues,” said Moutray. “Interestingly, 81.5% of those completing the survey said that workforce shortages were the biggest downside risk to their economic forecast, closely followed by supply chain disruptions, increased cost pressures and the continued spread of COVID-19, including the delta variant.”
Supply chain struggles: “While manufacturing growth remains solid, supply chain bottlenecks are significant, holding back even stronger expansions in the sector,” said Moutray. “Manufacturers continue to cite the backlog of cargo at the ports, the shortage of truck drivers and soaring shipping costs as significant impediments. In a just-in-time production environment, this poses a serious challenge to production and capacity—and the shortage of workers is not helping either.”
A look ahead: “These supply chain and logistics issues are likely to extend into at least the first half of 2022, at least based on my conversations with manufacturing executives,” said Moutray. “While pricing pressures are likely to stabilize as we move into 2022—assisted by a more-favorable base comparison—it is also clear that some costs will remain elevated relative to pre-pandemic levels, and core inflation might run hotter than we had become accustomed to.”
Dive Deeper: Read more about the economic outlook in the NAM’s 2021 3rd Quarter Manufacturers’ Outlook Survey.