Statistically Speaking: U.S. Manufacturers Cautious as Imports Surge

October 4, 2022  by HFBusiness Staff in Business Strategy, Industry   

As the global manufacturing economy expands, sorting out the value of domestic furniture manufacturing in terms of U.S.-supplied or foreign-imported parts is tricky and complex. Five years before the 2020 pandemic, the U.S. Department of Commerce Economics and Statistics Administration issued a research study titled “2015: What is Made in America” to explore the subject in each of the major U.S. manufacturing sectors. The conclusions were the first to bring into focus the impact of the global economy on the U.S. furniture industry. The report showed that 18% of the gross output of domestically produced furniture and related products is foreign content. It went further to look at the distinction between the U.S. content of what we produce versus what we consume. The conclusion states that in 2015, 53% of final U.S. purchases of furniture and related products were imported, either by purchases of imported final goods or imported intermediate inputs in U.S.- produced goods. Against this backdrop, Statistically Speaking in this issue explores the ongoing crises of Made in America furniture products.

Table A illustrates how that trend has exploded since then as e-commerce took off and importing products grew easier and easier. In 2012, the ratio of domestic production to imports was more than double at 2.11 compared to 2021 at 1.17. Imported furniture and related products finally surpassed domestic production briefly for two months in April and May of this year, but then fell below June’s level (Table B). However, it is anticipated this dip is temporary. And even with the Covid-related lockdowns, primarily in China, and subsequent supply chain problems from September to November of last year, the imports recovered quickly. Since December of 2021, manufacturers’ shipments have climbed each month up to $6.22 billion in May from a low of $5.71 billion in the previous March. The climb slowed slightly in June – decreasing 1% to $6.16 billion (Table B).

Figure 1 focuses specifically on the key economic indicators for U.S. domestic manufacturing including shipments, new orders, inventories and unfilled orders. In the second quarter of this year compared to the prior first quarter, average monthly shipments, new orders and inventories all trended upward, while unfilled orders dropped 1.7%. But in the last month, June, monthly data showed shipments trending down compared to May as the other indicators all had increases. These indicators are each explored in more depth throughout this article.

Over the last 10 years, domestic manufacturers’ shipments of furniture and related products peaked in 2018 at $77.8 billion. The value of shipments began to decline in 2019 by 3.7% before diving 7.8% more in 2020 (Table C). U.S. shipments began to rebound in 2021 by 0.6% as shutdowns continued in China, opening a window for domestic manufacturers. Then in the first half of this year domestic production took off growing 6.5% compared to the first half of 2021.

After an uphill battle in 2021 with increasing consumer demand and supply chain disruptions, the value of domestic shipments in the first quarter of this year finally jumped 4.4% from $17.46 billion in 2021 Q4 to $18.23 billion in 2022 Q1. Slow growth returned in the second quarter increasing 1.7% over the prior 2022 Q1 (Table D).

Although not an exact apples-to-apples product comparison, the tables have turned for manufacturers and retailers when it comes to inventory levels. Throughout 2021 and early 2022, manufacturers of furniture and related products carried a much higher ratio of inventory to shipments compared to retailers’ inventory to sales ratios (furniture and home furnishings products) (Table E).

But in March of this year, the tide changed as retailers tended to build more inventory than manufacturers. By June of this year, the ratio of inventories to dollar shipments for manufacturers was 1.57X compared to retailers at 1.69X.

After unfilled orders increased consistently month-to-month throughout most of 2021, manufacturers have been ever-so-slowly whittling down the sizable backlog this year. However, the data for June showed a rise again of 0.5% (Table F).

In the years leading up to the pandemic (2018 – 2019), manufacturers’ monthly unfilled orders/backlog was mostly consistent at 130% of the value of shipments (ratio 1.3X). The ratio peaked in December of last year at 1.87X as unfilled orders approached double the shipment volume. In May of 2022, the backlog ratio dropped to 1.66X before popping up slightly to 1.69X in June (Table G).

New orders, the life blood of manufacturing, stayed close to $6 billion a month for most of 2021 before dipping down to $5.78 billion in November last year. However, monthly orders have consistently been above $6 billion a month since March of this year reaching $6.21 billion in June (Table H).

While manufacturers’ shipments grew consistently 2012 to 2016, the number of manufacturing establishments declined rapidly (Table I). In 2011 the number of companies manufacturing furniture and related products totaled 18,985 before falling 7.2% over the next five years to 17,623 in 2016. Since then, growth in establishments has been relatively flat until an uptick to 17,878 companies in 2021. (Table I).

While the number of manufacturing establishments was falling and shipments were growing 2012 to 2016, employment grew 12.4% by 2017 peaking at 394.9 thousand employees. Not surprisingly, employment took a dive in 2020 down to 359.1 thousand before climbing back up to 385.4 thousand over the first half of this year.

Although manufacturing employment increased rapidly at the beginning of this year, jobs peaked in March at 387.1 thousand and have been falling at roughly 0.2% a month down to 384.6 thousand in July (Table K).

Annual hourly wages have increased every year over the last decade but the biggest gains have been made in the last two years, jumping 5% to $24.17 in 2021 and another 5.3% to $25.46 in the first six months of this year (Table L). High inflation and slowing consumer demand are giving all areas of the economy pause, especially furniture manufacturers, who have seen inventories rise uncomfortably, despite steady orders. Most are taking a cautious approach forward.