US factory production rebounds—fastest surge in months

U.S. factory production in July posted the strongest gain since April, reflecting a surge in production at auto plants that are still handling major supply chain problems.

The Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, jumped to 55.3 last month from 48.1 in June, well above 50-level separating growth from contraction. Manufacturing output has increased 1.4% last month following a decline of 0.3% in June, the Federal Reserve reported Tuesday. It was the best showing since a 3.4% gain in March.

Overall, industrial production (which includes manufacturing, utilities and mining) posted a 0.9% increase, the best performance since a 2.8% surge in March. “Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local COVID-19 restrictions,” said Pollyanna De Lima, economics associate director at IHS Markit.

The mining sector (which includes oil and gas production) rose 1.2% as producers continued to ramp up production in response to rising prices for crude oil. Output in the utility sector fell 2.1% in July, as near record-high temperatures in the West were offset by cooler temperatures in other parts of the country.

About half of the 1.4% gain in manufacturing output came from a 11.2% rise in the production of motor vehicles and parts, reflecting the fact that many auto plants trimmed or canceled their typical shutdowns in July for retooling. The Fed reported that auto production is at a stand by due to persistent shortages of computer chips.

While the gain in factory output in July was double what had been expected, many economists said that output in coming months will likely moderate given the on-going problems with supply chains and labor shortages. “With many sectors still suffering from severe shortages of raw materials and workers, we suspect growth will slow again over the coming months,” said Andrew Hunger, senior US. economist at Capital Economics.

With the 0.9% gain in July, overall industrial production is now 6.6% above its July 2020 level but still 0.2% below its February 2020 pre-pandemic peak. However, the manufacturing sector is now 0.8% above its pre-pandemic peak.

Industries operated at 76.1% of capacity in July, up from 75.4% of capacity in June. In addition to the strong gain in auto and parts production, machinery output was up 1.9% in July, computers and electronics showed a 1.1% gain and aircraft production rose 1.9%.



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