Despite Demand, Factories Still Aren’t Humming

The global economic slowdown is not just impacting traditional industries. The manufacturing sector has been hit hard, with the United States losing over 1 million jobs in 2017 alone.

Despite the demand for chips, factories are still not humming. The reason behind this is that there is a shortage of silicon due to the United States’ trade war with China. Read more in detail here: whats going on with the chip shortage.

Despite Demand, Factories Still Aren’t Humming

In April, workers at Sealstrip Corp.’s headquarters in Pennsylvania were hard at work. Manufacturers in the United States are encountering limitations despite operating at or near capacity.

Hannah Yoon is a photographer for The Wall Street Journal.

12:44 p.m., July 15, 2021 ET

Factory output is having a difficult time ramping up. This isn’t because manufacturers don’t want to go quicker; it’s because they can’t right now.

The Federal Reserve said on Thursday that industrial production—the sum of output from factories, utilities, and mines in the United States—increased by 0.4 percent in June compared to May. In a month of record-breaking heat, the nation turned up the air conditioners, resulting in a 2.7 percent rise in utility production. Manufacturing output fell 0.1 percent in June, after rising 0.9 percent in May and falling 0.4 percent in April.

Looking beyond the month-to-month fluctuations, industrial production increased only 1.1 percent in the first half of the year, a modest increase given how quickly demand is growing, and remains far below pre-pandemic levels. The car sector, which has been particularly affected by the worldwide semiconductor shortage, is a major contributor to the issue. Aside from that, manufacturing production has increased by 2.3 percent this year, bringing it back to pre-pandemic levels. Again, nothing to get excited about.

Meanwhile, manufacturers aren’t even close to reaching their full potential. According to the data released on Thursday, they were at 75.5 percent capacity last month, which is similar to where they were before the epidemic but far from being at capacity.

Nonetheless, they are obviously reaching their limitations. Because of the chip scarcity and the overburdening of global transportation networks, manufacturers are unable to increase output. Manufacturers are also having a difficult time recruiting workers. According to the Labor Department, the manufacturing job openings rate—job openings as a percentage of manufacturing employment plus unfilled positions—was 6.2 percent in May. The highest manufacturing job opening rate before the epidemic, according to statistics dating back to 2000, was 3.9 percent in late 2018.

Manufacturing restrictions will take time to alleviate, but it seems likely that they will do so within the next year. Semiconductor supply will increase, and shipping snarls will be resolved. Many of the reasons restricting labor availability—a partial list includes concerns over Covid-19, increased unemployment benefits, child-care difficulties, and limited mobility.

And if those things happen, manufacturing might go off like a rocket.

The speed with which we can drive a vehicle off the lot or purchase a new laptop is being hampered by a worldwide chip scarcity. The Wall Street Journal visits a fabrication facility in Singapore to learn about the complicated process of chip manufacturing and how one company is attempting to solve the shortfall. Photo courtesy of The Wall Street Journal’s Edwin Cheng.

The semiconductor shortage is a problem that has been present for a while. Despite the demand, factories are not humming because of various reasons.