The Manufacturing Base Hangs Tough
New survey results from the National Association of Manufacturers (NAM) provides a silver lining to the clouds darkening the outlook for the US economy. Specifically, NAM’s Second Quarter 2020 Manufacturers’ Outlook Survey found 98.7% of manufacturers have sustained operations through the COVID-19 crisis. NAM’s overall Manufacturing Outlook Index score registered at 23.3 for the second quarter of 2020, the index’s lowest score since the first quarter of 2009.
Manufacturers have continued to operate despite, as the NAM survey has discovered, a collapse in the percentage of manufacturers expressing optimism about their company’s future outlook from 76% in March to 34% in May. Small manufacturers express more optimism about their prospects than large manufacturers, 42% to 23% respectively, a difference of 19%.
According to the survey, manufacturers expectations show they have lost the most confidence in future sales and output. On average, manufacturers expect sales to decrease sharply by 4.3% over the next 12 months, and 39% of manufacturers believe their sales will drop by more than 10%. Large manufacturers hold a more dire view of the sales outlook than smaller counterparts, as large manufacturers expect sales to decline by 4.9% compared expectations of a 4% decline by small manufacturers.
The outlook for production output is similarly pessimistic. Manufacturers expect production to fall over the next 12 months by 3.8%. Over one-third of manufacturers believe their production levels will decline by 10%. Again, large firms hold a more negative perspective on the outlook for production than small manufacturers. Large manufacturers anticipate production to decrease by 4.5% while small and medium sized firms expect a decline of 3.4%.
The survey also detects further deterioration in employment. Overall, manufacturers expect full-time employment to decrease by 2.2% over the coming year. Nearly half (47%) of all manufacturers expect their employment levels to decline. Large manufacturers foresee a 3.2% drop in the size of their workforce compared to the 1.3% drop expected by small firms.
Relatedly, the survey notes manufacturers expect reduced growth in costs over the next 12 months. On average manufacturers anticipate employee wages to increase by 0.5% (down from 2.1% in the March 2020 survey), raw materials costs to grow only by 0.9% (down from expectations of 1.8% in March 2020), and health insurance costs to grow by 5.7% (down from 6.2% in March 2020).
NAM’s survey results have been supported by the results of the latest results from the Institute for Supply Management’s (ISM) survey of manufacturing purchasing managers. ISM’s Purchasing Manager’s Index, a composite indicator of reported manufacturing production activity, rose from 41.5% in April 2020 to 43.1% in May 2020. This comes after a 7.6% decline in the index between the March and April reports. ISM President Timothy Fiore described these results as indicative of an “expansion in the overall economy.”