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Rise in Machine Tool Orders Counters Trend:  The recent uptick in orders from machine shops and OEMs may be an indication that manufacturers are overlooking the high interest rates that have restrained new orders year-to-date.  During May, U.S. machine shops and other manufacturers increased their demand for capital equipment in response to new order volume.  For example, new metal-cutting and metal-forming and fabricating machines rose 21.8% from April 2024 and 6.5% from May 2023.  Nonetheless, the year-to-date new-order volume for 2024 is 12.2% less than the same period last year.

The above figures were supplied by the Association for Manufacturing Technology in its U.S. Manufacturing Technology Orders report.  That report serves as an indicator of future manufacturing activity because it quantifies machining operations’ investments in preparation for new production programs.  The Association noted that the May report indicates a realization by manufacturers that capital investment is necessary “to meet the sustained demand for goods and machinery from consumers and businesses,” despite the ongoing strain of high interest rates.

Regional demand for manufacturing technology was generally strong during May, particularly among electrical equipment manufacturers, power generation and transmission equipment manufacturers, and the automotive industry.  In the Northeast, metal-cutting machinery rose 73.3% from April to $77.08 million, and yet regional year-to-date orders lag 2023 by 15.2%.  Strong May order volumes were also reported for the North Central-East, South Central, and North Central-West regions, and to a lesser extent in the West region.  Even so, year-to-date activity is still trailing last year’s results.

Biden Administration Awards Additional Grants for EV Production: On July 10, the Biden administration announced plans to award nearly $2 billion in grants to help restart or expand electric vehicle manufacturing and assembly sites owned by General Motors, Fiat Chrysler, Volvo, and other carmakers in eight states, including the presidential battlegrounds of Michigan, Pennsylvania, and Georgia.  The grants, paid for by the landmark 2022 climate law, will help deliver on Biden’s commitment to ensure the future of the auto industry is made in America by American union workers.  The White House is courting union workers in key battleground states and seeking to reassure autoworkers that EVs will not cost jobs.

The White House said the Energy Department will issue grants totaling $1.7 billion to create or retain thousands of union jobs and support auto-based communities that have long driven the U.S. economy.  Besides the three battleground states, grants will go to facilities in Ohio, Illinois, Indiana, Maryland, and Virginia.  The awards are subject to negotiations to ensure that commitments to workers and communities are met, officials said.  The Energy Department will also complete environmental reviews before money is awarded later this year.

“There is nothing harder to a manufacturing community than to lose jobs to foreign competition and a changing industry,” said U.S. Secretary of Energy Jennifer M. Granholm.  “Even as our competitors invest heavily in electric vehicles, these grants ensure that our automotive industry stays competitive, and does it in the communities and with the workforce that has supported the auto industry for generations.”

Manufacturing Workers Among Most Satisfied with Their Jobs: TollFreeForwarding.com, an international telecommunications provider based in Los Angeles, California, recently conducted a survey to determine which industries have the most satisfied employees.  They selected 10 top industries in the U.S. and identified 20 top companies within each industry.  They then used Glassdoor review data, which ranks each company on a scale of 1 to 5 based on: culture & values, diversity & inclusion, work-life balance, compensation, career opportunities, and senior management satisfaction.  Using this approach, each company could earn up to 5 points in each category.  The 20 company scores were then added together for a total possible score of 100 per category.  Those total scores were then averaged to receive the overall score for each industry.

As indicated in the table below, the construction industry ranked first as having the most satisfied employees, earning an overall score of 72.20 out of 100.  Several factors are likely contributing to construction’s high scores, including skyrocketing wages, which have risen more than 20% since 2021, increasing job opportunities, greater job security, and the availability of diverse roles.  The manufacturing industry ranked third overall with a score of 71.75 and the highest score in the diversity & inclusion category.

Jason O’Brien, COO of TollFreeForwarding.com commented, “It’s clear that job satisfaction plays an important role in employee retention, and research shows that happy employees are more productive than those dissatisfied with their jobs.  As our findings show, employee satisfaction is based on a variety of factors, from workplace culture and compensation to opportunities and management.  Businesses that want to retain their employees need to focus on all these factors, as the top-ranking industries scored highly across the board.”

Election Uncertainty Clouds Supply Chain Outlook: Biden’s departure from the 2024 presidential race has created further uncertainty in companies’ demand forecasts.  Recent polling suggests a close election race between Republican presidential nominee Donald Trump and presumed Democratic nominee Vice President Kamala Harris.  That makes it less clear which broad set of policies supply chain and manufacturing executives will have to contend with in 2025.

That uncertainty may very well kick the can down the road for certain capital investment decisions.  For example, a Republican in office could spur more investment in oil and gas products, while a Democrat in office could increase companies’ focus on green energy investments, said Timothy Fiore, manufacturing business committee chair at the Institute for Supply Management.  “If you’re not really sure where the money is going to be spent, you’re not going to get ahead of it,” Fiore said.

Fiore believes manufacturers are in a belt-tightening phase, with few willing to make equipment, labor, and inventory investments amid the unknowns of an election year, moderate demand, and heightened interest rates.  As a result, experts believe it’s unlikely that production activity will increase during the second half of the year.  A rate cut by the Federal Reserve in September would help, but it would likely come too late to help manufacturing activity in 2024.

As policy uncertainty and soft demand continue in the near term, manufacturers need to find ways to be as efficient as possible since reasonably weak demand conditions may continue during the next six months or so.  Once we get into 2025, if the Federal Reserve cuts rates a few times manufacturers will be in a much better position to see if construction activity is set to improve.

Manufacturing Industry Outlook

The production at U.S. factories increased more than expected in May, recovering all the declines in the prior two months.  According to the Federal Reserve, manufacturing output in May rose 0.9% following a downwardly revised 0.4% drop in April.  Economists polled by Reuters had forecast a 0.3% increase in factory output after a previously reported 0.3% decrease in the prior month.  Despite the improvement, the momentum is unlikely to be sustained amid higher interest rates and the softening demand for goods.

An Institute for Supply Management (ISM) survey published in June found that “demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy, uncertainties related to the outcome of the 2024 presidential election, and other conditions.  The ISM said, “These investments include supplier order commitments, inventory building, and capital expenditures.”  During the first quarter, spending on goods declined for the first time in 1 1/2 years.

Manufacturing, which accounts for 10.4% of the economy, has been hamstrung by higher borrowing costs.  In June, the Fed kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since last July.  In addition, U.S. central bank officials have pushed back the start of rate cuts to perhaps as late as December, with policymakers projecting only a single quarter-percentage-point reduction for this year.

As a result of the above factors, experts believe it’s unlikely that manufacturing production will increase until the results of the election are final and the Fed reaches a decision as to whether to cut interest rates later this year.