WASHINGTON: US manufacturing output increased solidly in August, boosted by a surge in the production of machinery and other goods, but the outlook for factories remains weak amid rising headwinds from trade tensions and slowing global economies.
Manufacturing production rose 0.5 percent last month after an unrevised 0.4 percent drop in July, the Fed said. Economists polled by Reuters had forecast manufacturing output rising 0.2 percent in August.
Production at factories fell 0.4 percent in August on a year-on-year basis. Manufacturing, which accounts for about 11 percent of the US economy, is being hobbled by the US-China trade dispute.
The year-long trade spat has eroded business confidence, leading to a slump in the sector, which ironically the Trump administration has sought to protect against what it has called unfair foreign competition. Despite last month’s rebound in manufacturing output, factory surveys remain downbeat, suggesting the turnaround in production was likely temporary.
A survey this month showed a measure of national manufacturing activity contracted in August for the first time since August 2016. Another survey from the New York Fed on Monday showed a measure of business activity in New York state slipped in September.
Manufacturers in New York state were also less upbeat about business conditions over the next six months, with a measure of capital expenditures dropping to a three-year low.
“We expect manufacturing and capex spending to remain under pressure over the next few months as trade uncertainty still swirls, global growth remains
meagre and the strong dollar creates an added hurdle for US exporters,” said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Manufacturing is also weakening as the boost from last year’s $1.5 trillion tax package fades. Cuts in the production of Boeing’s 737 MAX aircraft, which was grounded indefinitely in March following two deadly crashes, are also adding to manufacturing’s malaise.
Manufacturing and housing are main areas of weakness in the economy, which is being driven by robust consumer spending.
A separate report from the National Association of Homebuilders on Tuesday showed homebuilders’ confidence edged up in September. Builders said while lower interest were supporting demand, land and labour shortages remained a constraint.
The Atlanta Fed is forecasting gross domestic product rising at a 1.8 percent annualised rate in the third quarter. The economy grew at a 2.0 percent pace in the April-June quarter, stepping down from the first quarter’s 3.1 percent rate. The dollar slipped against a basket of currencies ahead of Wednesday’s rate decision. US Treasury prices rose, while stocks on Wall Street were little changed.
Manufacturing has also been hurt by an inventory overhang, mostly in the automotive industry. Motor vehicles and parts production fell 1.0 percent last month after increasing 0.5
percent in July.
A strike by about 48,000 General Motors workers could further dent motor vehicle production, but much would depend on the duration of the work stoppage, which started on Monday.
Excluding motor vehicles and parts, manufacturing output increased 0.6 percent in August after declining 0.5 percent in the prior month. Machinery output rebounded 1.6 percent after dropping 1.7 percent in July. Primary metals production increased 1.3 percent. There were also gains in furniture and computer and electronic products output.
The jump in manufacturing output in August, together with a 1.4 percent rebound in mining, lead to a 0.6 percent increase in industrial production last month. That was the largest rise in industrial output since August 2018 and followed a 0.1 percent dip July. Industrial production rose 0.4 percent on year-on-year basis in August.
Mining production in July was depressed by Hurricane Barry, which disrupted oil extraction in the Gulf of Mexico.
Oil and gas well drilling fell 2.5 percent last month, decreasing for a second straight month. Energy firms have been cutting spending on new drilling to focus more on earnings growth
instead of increased output. This has contributed to weakness in business investment, which contracted in the second quarter for the first time in three years. – Reuters
