March 2021 Manufacturing Business Outlook Survey

Note: Survey responses were collected from March 8 to March 15.

Manufacturing conditions in the region strengthened further this month, according to firms responding to the March Manufacturing Business Outlook Survey. The indicators for general activity and new orders rose sharply, and the shipments and employment indexes also increased. Price pressures also rose, according to the surveyed firms. All of the survey’s indexes for future conditions increased, as the firms indicated more widespread optimism about growth over the next six months.

Current Activity Index Hits 50-Year High

The index for current manufacturing activity in the region jumped from a reading of 23.1 in February to 51.8 this month, its highest point in nearly 50 years (see Chart 1). Nearly 59 percent of the firms reported increases in current activity this month (up from 35 percent last month), while only 7 percent reported decreases (down from 11 percent). The current new orders index also increased substantially to a 50-year high, rising 28 points to 50.9 in March. The current shipments index increased 9 points to 30.2.

The firms continued to add to their payrolls this month. The current employment index increased from a reading of 25.3 in February to 30.1 this month. Nearly 32 percent of the responding firms reported increases in employment, while only 1 percent of the firms reported decreases. The current workweek index increased 9 points to 39.7.

Price Increases Are More Widespread

The firms continued to report price pressures from purchased inputs. The prices paid index rose sharply from 54.4 to 75.9, its highest reading since March 1980 (see Chart 2). Over 77 percent of the firms reported higher input prices this month, up from 55 percent last month. With respect to prices received for firms’ own manufactured goods, 35 percent of the firms reported higher prices, up from 18 percent last month. The prices received index increased 15 points to 31.8.

Firms’ Optimism for Growth Expands

The diffusion index for future general activity more than recovered from its decline last month, rising 22 points to 61.6 this month, its highest reading since June 2020 (see Chart 1). Nearly 70 percent of the firms expect increases in activity over the next six months (up from 55 percent last month), while 8 percent expect declines (down from 15 percent). The future new orders and shipments indexes also rebounded, rising 15 points and 24 points, respectively. The future employment index rose 12 points to 46.9. The percentage of firms expecting to increase employment over the next six months (51 percent) remained higher than the percentage expecting to decrease employment (4 percent). The future capital spending index rose 11 points to 35.9.

Firms Report Difficulties Finding Skilled Workers

In special questions this month, the firms were asked generally about worker shortages, any perceived mismatches between skill requirements and labor supply, and the ways in which they were dealing with these problems (see Special Questions below). Over 64 percent of the firms indicated labor shortages, while 59 percent indicated skills mismatches between requirements and available labor. Nearly 45 percent of the surveyed firms also reported that they had positions that have remained vacant for more than three months. A sizable share of firms (29 percent) reported seeing a significant shortage in qualified applicants for some skills and positions, while 18 percent of the firms reported seeing a broad labor shortage, such that it is hard to fill any position. In addition to increasing wages and stepping up recruiting efforts, the firms have adopted a mix of strategies to deal with these problems, including increasing training of existing employees and new hires. Nearly 43 percent of the firms indicated that they have hired less qualified workers to meet their labor requirements.

Summary

The firms’ responses indicated widespread growth in the region’s manufacturing sector this month. The survey’s broadest measures for activity, new orders, shipments, and employment all increased, with the former two indexes reaching long-term highs. Additionally, the firms have indicated mounting price pressures. The survey’s future indexes indicate more optimism about continued growth over the next six months.

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