Manufacturing thrived in 2022, despite the Federal Reserve’s combative monetary policies. Demand for workers soared and employers added an average of 32,000 new net jobs per month. Whether by official job openings, or by Indeed daily job postings, demand for manufacturing workers in 2022 was nearly double demand in 2020 – outpacing even the service industries in which consumer demand has soared. So, how did manufacturing withstand the interest rate hikes?
Goods Demand High
Interest rates, in theory, should reduce consumer demand for goods, especially costly investments in durable goods. However, the consumer remained resilient in 2022, spending steadily despite high inflation and interest rate hikes. Durable goods were no exception – in November 2022, spending was up nearly 25% from February 2020. Though increases have slowed, there’s been no meaningful drop in spending since interest rates began rising. Impressive spending has buoyed manufacturing employment through a would-be period of slashed demand.
Learning From Global Problems
The start of this decade has been bumpy for nearly everyone but the manufacturing sector was hit particularly hard. Supply chains became snarled with backorders as consumer demand for goods soared; the experience taught manufacturers a few hard-earned lessons.
First, the backorders had to be dealt with: manufacturers attempted to rebuild workforces throughout 2021 but recreating over a million jobs took time. Employment did not return to pre-pandemic levels until June 2022. Some of manufacturing’s resilience came from the fact they had just barely rebuilt their workforce when the Fed began raising rates.
Second, the supply chain issues, which aggravated consumers and delayed production across industries, were not easily forgotten (how could anyone forget the moment when the world’s economy seemed hinged on a single sideways boat?). The decades-long talk of reshoring (bringing jobs back to U.S. soil) once again surfaced – but this time, employers took it seriously. According to reports, more than 350,000 jobs were expected to be reshored in 2022 – up 25% from 2021. After decades of moving jobs abroad to lower costs, employers are coming around on the benefits of keeping labor close to home. The recently passed Inflation Reduction Act and the CHIPS and Science Act also helped – the federal government and private companies alike have displayed a new commitment to reshoring after the pandemic’s challenges.
Can This Momentum Keep Up in 2023?
Manufacturing’s surprising resilience may be showing the first signs of cracks. In the last two months of 2022, the sector gained 8,000 jobs per month, compared to the 32,000 average last year. Demand slipped from a mid-year high in November (though it remains elevated far above pre-COVID levels).
It’s unclear if manufacturing can uphold these impressive gains in 2023 while the Fed continues its fight against inflation. But, while manufacturing surveys indicate components moving into contraction territory – including new orders and production – manufacturers still feel confident about employment in their industry.