Last updateFri, 29 May 2020 4pm

NAM Survey: Manufacturers Face Headwinds, Continue Operations

The National Association of Manufacturers (NAM) released the results of the Manufacturers’ Outlook Survey for the second quarter of 2020 showing that despite a historic drop in optimism, to nearly 34%, and challenging business conditions, the vast majority of manufacturers (98.7%) have continued or only temporarily halted operations. The survey also shows that manufacturers are innovating to find solutions to keep businesses running and to protect workers and communities, with almost 22% retooling to produce personal protective equipment, 67% reengineering processes to reflect COVID-19 safety protocols and 12% completely reevaluating the mission of the firm.

Durable Goods Orders Down 17.2% in April

New orders for manufactured durable goods in April decreased $35.4 billion or 17.2% to $170.0 billion, the U.S. Department of Commerce announced. This decrease, down three of the last four months, followed a 16.6% March decrease. Excluding transportation, new orders decreased 7.4%. Excluding defense, new orders decreased 16.2%. Transportation equipment, also down three of the last four months, led the decrease, $23.9 billion or 47.3% to $26.6 billion. 

Contraction Continues in Texas Manufacturing Sector

Texas factory activity declined again in May, though at a slower pace than in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained negative but improved from -55.6 to -28.0, suggesting the contraction in output has eased somewhat since last month. Perceptions of broader business conditions remained negative but were somewhat less pessimistic in May.

Other measures of manufacturing activity pointed to a less-severe decline in May. The new orders index advanced 38 points to -30.6, its highest reading in three months, with more than 20 percent of manufacturers noting an increase in orders. Similarly, the growth rate of orders index pushed up more than 30 points to -30.8. The capacity utilization and shipments indexes also remained negative at -26.0 and -25.7, respectively, but were up from March and April.

U.S. Manufacturing Decline May Have Peaked in April

Manufacturers registered a further substantial deterioration in operating conditions midway through the second quarter, as the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index posted 39.8 in May, up from 36.1 at the start of the second quarter.

Driving the deterioration were significant contractions in production and new orders, as businesses slowly returned to work amid challenging domestic and foreign demand conditions. The rates of reduction were among the most marked since the depths of the financial crisis.

Manufacturers were still concerned as to the purchasing power of their clients following the pandemic, with many continuing to reduce their output charges in the hope of boosting sales amid a second monthly decline in input costs.

Small Business Optimism Continues Two Month Slide

Small business optimism took another dive in April, falling 5.5 points to 90.9, with owners expressing certainty the economy will weaken in the near-term, but expecting it to improve over the next six months. The NFIB Small Business Optimism Index has fallen 13.6 points over the last two months, with nine of 10 Index components declining in April and one improving.

“The impact from this pandemic, including government stay-at-home orders and mandated non-essential business closures has had a devasting impact on the small business economy,” said NFIB chief economist William Dunkelberg. “Owners are starting to benefit from the PPP and EIDL small business loan programs as they try to reopen and keep employees on staff. Small business owners need more flexibility, though, in using the PPP loan to support business operations and liability protection so that all these efforts to support small businesses are not ultimately lost in costly litigation.”

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