COVID-19 Impact on U.S. Manufacturing

Perspective | June 2020

The manufacturing industry’s immediate and long-term future will be defined by the
impact of COVID-19 and the development of the strategic priorities of manufacturers.

Accordingly, Great Prairie Group (GPG) looks at crucial manufacturing economic
trends to watch in 2020 and the dynamics of the manufacturing industry sectors.

The data at the time of publication reflects April 2020.

COVID-19 is foremost a global social crisis.
COVID-19 is having a significant impact on the U.S. manufacturing industry. The demand for U.S. manufactured goods has fallen sharply.

As a result, production is slowing down…

…and supplies are starting to accumulate.

U.S. exports are decreasing across all categories of
manufactured goods.

Producer prices are dropping for final demand and
intermediate demand across all stages of production, as
manufacturers are cutting prices to attract sales

The industry shed 1.36 million jobs, driving
manufacturing unemployment to 13.2%.

As manufacturers idled production to curb losses,
capacity utilization deteriorated to 55% for durable
manufacturing and 68% for nondurables.

Not surprisingly, the U.S. Business Confidence Index
shows growing pessimism on the part of business
leaders. The index has been ahead of the U.S. Consumer
Confidence Index, as consumers are generally less well informed.

The crisis is impacting each manufacturing sector in a different way.

The evolution of the crisis is giving rise to different
developing scenarios across manufacturing sectors.

Note: Figures are shown in millions of dollars
Source: U.S. Census, GPG Analysis

At this stage, many sectors are facing disruption,
several are constrained, and some are poised for growth.
Some sectors are particularly vulnerable.
Sectors / Sub-sectors
Audio and video equipment
Dairy products
Defense search and navigation equipment
Electrical equipment
Electronic components
Paints, coatings, and adhesives
Pesticides, fertilizers, and other agricultural chemicals
Pharmaceuticals and medicines
Some manufacturing sub-sectors are finding unique opportunity to grow as they are becoming more critical to the economy.
Demand Constrained
Sectors / Sub-sectors
Construction machinery
Ferrous metal foundries
HVAC equipment
Industrial machinery
Iron and steel mills
Leather and allied products
Meat, poultry, and seafood products
Metalworking machinery
Motor vehicle bodies, parts, and trailers
Nondefense search and navigation equipment
Paperboard containers
Plastics and rubber products
Search and navigation equipment (nondefense)
Ships and boats
Falling consumer demand or derived demand is constraining several sectors and sub-sectors from growing.  Four groups under intense pressure include Chemicals, Machinery (construction, industrial, and metalworking) Motor Vehicle Bodies, Parts, and Trailers, and Primary Metals.
Supply Constrained
Sectors / Sub-sectors
Computer storage devices
Defense communications equipment
Supply chains become constrained due to raw material shortages, production slow-downs, or inadequate fulfillment. Two subsectors are being constrained.
Sectors / Sub-sectors
Aluminum and nonferrous metals
Computer peripheral equipment
Defense Aircraft and parts
Electric lighting equipment
Electromedical, measuring, and control instruments
Fabricated metal products
Farm machinery
Furniture and related products
Grain and oilseed milling
Heavy duty trucks
Household appliances
Light trucks and utility vehicles
Material handling equipment
Mining, oil field, and gas field machinery
Nondefense aircraft and parts
Nondefense communications equipment
Nonmetallic mineral products
Petroleum and coal products
Photographic equipment
Pulp, paper, and paperboard mills
Textile mills
Wood products
These sectors/sub-sectors are subject to both demand and supply chain constraints and operate under intense pressure. Highly vulnerable groups involve Fabricated Metal Products,  Petroleum and Coal Products, and Transportation Equipment (aircraft & parts, light trucks & utility vehicles, heavy trucks)
COVID-19 appears to accelerate existing business and economics trends, rather than create new ones.

The sectors at the heart of the fossil-fuel economy – Petroleum and Coal products – had already been going through fluctuating demand given the adversity of carbon emissions, and have become extremely vulnerable to the crisis due to a severe drop in demand and supply chain interruptions.

The Machinery sector – including construction machinery, industrial machinery, and metalworking machinery as well as mining, oil field, and gas field machinery — was hit first as industrial buyers held off capital investments immediately upon the first signs of a slowing economy.

The Automotive sector had been experiencing a period of weakness prior to the pandemic, driven by the scale-down of internal combustion engines and reduced buyer demand. It has since faced a significant drop in demand and production constraints given its reliance on global supply chains.

Aerospace companies predict that it will take several years for the demand for air travel – thus aircraft, engines, and components – to return to pre-pandemic levels. These manufacturers have also been hit heavily by supply chain interruptions. As a result, manufacturers are drastically reducing their workforce.

Primary Metals including aluminum, iron, and steel had been in low demand as their primary markets anticipated a weak near-term outlook. Since the pandemic, end-users, including the automotive sector, the oil and gas industries, and white-goods manufacturers, have reduced buying and are not likely to increase demand anytime soon.

The Chemical sector is cyclical and was slowing down before the pandemic. It has since experienced a reduction in demand as industries that buy primary or intermediary inputs have slowed down production. Particularly heavy hit are petrochemicals, basic inorganic, polymers, specialty chemicals, and consumer chemicals. Pockets of resilience include pharmaceuticals and medicines, agricultural chemicals, paints, coats, and adhesives.

The Fabricated Metal Products sector had seen higher material costs due to tariffs, particularly with materials such as resins, steel, aluminum, copper, and other metals. Since the pandemic, the sector has seen a significant drop in demand from industrial buyers as well as supply chain interruptions.

Computers and Electronic Components sector have seen mixed results. Communications equipment and electronic components have experienced a surge in demand as companies equipped employees to work at home. On the other hand, computer peripherals, electro-medical equipment, and measuring and control equipment have seen reduced demand and supply chain interruptions.

The situation about COVID-19 is dynamic and evolving daily, and many questions remain unanswered.

There are decisive actions that company leaders can start taking today to strengthen their business tomorrow. To learn more, contact us directly.