Compared with some other industries, manufacturing has fared relatively well during the COVID-19 pandemic and recession, according to national data and polls of Ninth district businesses. But that doesn’t mean 2020 was all smooth sailing for factories across the region.

Indeed, Ninth District manufacturers saw a significant reduction in activity in 2020 compared with the previous year, according to a survey conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development in December 2020 and January 2021. Yet, despite the setbacks of the previous year, manufacturers had a positive outlook for the one ahead.

The survey results reflect responses from 476 manufacturing operations of various sizes across district states. Respondents reported decreases on average in almost all of the business indicators covered in the survey, with the exception of selling prices, which increased. A summary index reflects key survey results, representing changes in activity from 2019 to 2020, and 2021 expectations compared with 2020 performance (Chart 1).

A majority of manufacturers reported decreased sales, production, and profits. However, about a quarter of firms saw growth in orders, production, and profits on the year, an indication of the uneven toll the pandemic has had across businesses. Productivity was also up at a quarter of firms, but down at a larger share.

Investment in plants or equipment decreased at more than a third of firms, compared with about a quarter who increased capital expenditures. Employment decreased at more than a third of firms, and nearly half reported no change in employment. Wages and benefits grew slightly on balance, but two in five respondents reported no change in wages over the year.

Across the district, more manufacturers surveyed expect growth in 2021. Respondents anticipated increases nearly across the board, with positive expectations for every indicator except labor availability.

Nearly two in five respondents expected manufacturing employment to grow in 2021, while only 11 percent expected job cuts. The outlook for wages and benefits remained modest, but less dispersed than in 2020, with fewer firms planning wage decreases or big raises.

In addition to orders, which more than half of respondents expected to increase, prospects were strongest for production and selling prices. The outlooks for productivity, investment, and profits were also positive.

A special question on this year’s survey asked about the impacts of COVID-19. The biggest effect for manufacturers appeared to be on supply chains, as more than three-quarters reported that delays in supply chains had increased because of the pandemic. The next most significant impact was on revenues, which 61 percent of respondents said declined due to the pandemic. Productivity, cash availability, and investment in automations took pandemic-related hits as well (Chart 2).

The survey also asked firms how long they thought it would be before their business would go back to “normal operations.” While about a fifth of manufacturers said they had not experienced much of an effect at all, nearly half thought it would take longer than six months, and 11 percent did not think their business will go back to normal (Chart 3).

In spite of the negative impacts of the pandemic, manufacturers’ optimism for their operations also extended to their state economies. A strong majority expected state employment, business investment, consumer spending, corporate profits, and overall economic growth to increase or remain unchanged over the coming year. Inflation remained a concern, as more than half of respondents predicted that inflation would rise in 2021.