Though they may have dealt with serious headwinds in securing inputs, Ninth district manufacturers experienced strong growth in 2021. Further, they expect that growth to continue in the year ahead, according to a survey conducted in November and December by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development.

The survey results reflect responses from more than 400 manufacturing operations of various sizes across district states. Respondents reported increases on average in most of the business indicators covered in the survey, with the exception of profits and employment, which were flat, and labor availability, which fell. A summary index reflects key survey results, representing changes in activity from 2020 to 2021, and 2022 expectations compared with 2021 performance (see Chart 1).

Customer demand rose broadly, as more than 60 percent of respondents noted increased orders in 2021 compared with the previous year. About half reported that production at their operations grew. Meanwhile, fewer than a fifth said that orders fell in 2021 and a quarter said production fell. Productivity also climbed, as did investment in plant and equipment.

More than three-quarters of manufacturers increased the prices charged for their products. Profits, however, were flat overall, with a slightly higher proportion of respondents reporting profits decreased, than reporting increases. One reason for milder profits could be increased input costs, particularly for labor.

Perhaps surprisingly given strong demand and production, only a third of manufacturers reported increasing employment, with similar proportions reducing the number of workers or leaving employment unchanged. Several comments noted that limited labor availability restrained hiring, and nearly three-quarters of respondents indicated that labor availability had decreased, which may have resulted in faster reported compensation growth over the past year than in previous years. The largest share of firms—40 percent—reported raising wages by 3 percent to 5 percent in 2021, while one in six reported increasing pay more than 10 percent, and the same share increased between 6 percent and 10 percent.

The other major drag on profitability last year was ongoing supply chain bottlenecks and their impact on securing inputs. A special question on this year’s survey asked about the sources of those bottlenecks. The largest share of manufacturers—86 percent—reported supply chain disruptions due to raw materials availability. Delivery issues with domestic suppliers appeared to be a bigger challenge than issues with overseas suppliers, but a large share of manufacturers reported transportation or logistics issues too. Labor issues at suppliers were also a leading cause of bottlenecks (see Chart 2).

Looking forward to 2022, manufacturers had an optimistic outlook, generally expecting similar growth over the coming year to the previous one. Respondents anticipated increases across the board, with positive expectations for every indicator, including profits and employment.

In keeping with supply chain pressures and faster inflation readings, three-quarters of manufacturers expected to raise their selling prices in 2022. After prices, prospects were strongest for orders and production, with about half of respondents expecting each to increase in 2022. The outlooks for productivity and investment were also strong.

The outlook for labor availability is still tight on balance, but even so nearly half of manufacturers expected to increase employment at their operations in 2022, while only 10 percent anticipated decreased staffing. On average, wages and benefits were expected to increase slightly less than last year, but still at a brisk pace compared with recent years.

Manufacturers’ optimism for their operations also extended to their state economies. Most respondents expected state employment, business investment, consumer spending, and overall economic growth to increase or remain unchanged over the coming year.

The outlook for corporate profits at the economywide level is down however, perhaps owing to higher input costs. Inflation was a concern for more manufacturers than last year, as more than 90 percent of respondents predicted that inflation would rise, while only 21 percent expected it to fall in 2022.