America’s Post-Covid Factory Boom Is Running Out of Steam

Deere & Co., the world’s largest manufacturer of farm equipment by sales, has shed about 2,100 production workers since November, or 15% of its hourly workforce. Rival equipment maker Agco said in June it would cut 6% of its salaried workforce worldwide, or about 800 people, by the end of the year.

Recreational vehicle maker Polaris this week said it would adjust production to cut back on shipments to dealers. The disclosure came as it reported a 49% drop in quarterly income and noted that sales of its motorcycles, boats and off-road vehicles all dropped as consumers pulled back on discretionary purchases.

“Retail has proven weaker than anyone expected,” Chief Executive Michael Speetzen told analysts.

The cloudy picture in manufacturing comes as dozens of companies in the S&P 500 index make quarterly financial disclosures. Their results will be closely monitored as inflation moderates and the Federal Reserve considers cutting interest rates.

Whirlpool WHR -2.01%decrease; red down pointing triangle said a soft housing market is holding down demand for its refrigerators, dish washers and other household appliances. MSC Industrial Direct, a distributor of tools and industrial supplies to manufacturers, said its average daily sales during its recently completed quarter decreased by 7% compared with a year earlier.

The deceleration follows years of robust growth in sales and profits that started during the depths of the Covid-19 pandemic. Homebound consumers unable to spend money on restaurants, concerts and vacations opened their wallets for new dishwashers, pickup trucks and home-remodeling.

Supply-chain bottlenecks made it hard to get manufactured goods when consumers stepped up their spending. Companies ordered more to compensate for goods or materials that were hard to obtain. That stoked inflation. But higher prices eventually reduced consumers’ enthusiasm for buying. 

Government spending programs to support big new plants for making semiconductors, electric-vehicle batteries and power-generating infrastructure are offsetting some of the industry weakness. Some defense companies making weapons and other gear as conflicts in Ukraine and Gaza roll on are operating at robust levels. 

Economic data also present a mixed picture. Higher spending on durable goods helped the nation’s economy grow at a faster pace than expected in the second quarter, the government said. Factory output grew in June but at a slower pace than in the month prior.

Jeremy Flack, CEO of Phoenix-based steel and aluminum distributor Flack Global Metals, said steel buyers are keeping their purchases small on the expectation that prices will continue to fall. 

“We’re seeing significantly less demand this year than last,” Flack said. “After three years of breaking every record, we’re settling back into the old steel business.”

Weak demand for steel has kept prices on a monthslong slide this year. The current spot-market price of $655 a ton is down 22% from a year ago and off 40% from the beginning of the year, according to S&P Global Commodity Insights.  

After years of elevated equipment sales, farmers’ buying power this year is being diminished by lower prices for corn, soybeans and other commodities that the Agriculture Department predicts will reduce farm income by about 25%. 

Retail sales of high-horsepower farm tractors in the U.S. and Canada were down 12% in June from the same month last year, while sales of harvesters dropped 29%, the Association of Equipment Manufacturers said. 

Illinois-based Deere said it decided to make deep cuts in production in hopes of avoiding large inventories of unsold equipment at dealers, a condition that can hold down factory production when farmers are ready to step up purchases.

“We’re trying to be more proactive at how we manage production and inventories,” Chief Financial Officer Josh Jepsen said.

The production volume for automotive customers at Minneapolis-based metal stamper Dayton Rogers Manufacturing is down by one-third from the volume before the pandemic, said Mike Ingalls, director of operations.

“I don’t see automotive getting better,” he said.

A number of domestic automakers have slowed production of electric vehicles, stung by factors including weaker-than-expected demand from buyers. As a result, some companies are pulling back investments in new production or have retooled factories to churn out more models with internal combustion engines. The shifts are also rippling through automotive supply chains. 

Sluggish economies elsewhere in the world, including China, also are weighing on U.S. companies. Elevator and escalator maker Otis Worldwide slightly raised its profit outlook for the year but pared its sales forecast because of falling demand in China. 

The rising value of the U.S. dollar relative to other countries’ currencies makes foreign-made goods cheaper to import, putting U.S. companies at a disadvantage against foreign competitors.

Sohel Sareshwala, president of Accu-Swiss, a California-based manufacturer of small precision parts for the semiconductor, biomedical and food industries, said U.S. tariffs drive inflation and keep domestic prices for stainless steel and other materials he uses higher than his foreign competitors’ material costs. 

“The strong dollar, it does make a difference. Their cost for raw material also is significantly lower,” he said. 

Write to Bob Tita at robert.tita@wsj.com