Largely due to a surge in motor vehicle production, the Federal Reserve reported today that manufacturing output increased by 1.1 percent in July, the first increase in nine months and the fastest upturn in production since December 2006.
While a 20.1 percent surge in motor vehicle production accounted for more than 80 percent of the increase in manufacturing production last month as automakers resumed production at many plants that were shut down for much of the second quarter, the Fed report contained other positive news. The fact that 12 of the major 19 manufacturing sectors posted production gains in July, up from three in May and six in June, is an encouraging sign that positive momentum is building in the manufacturing sector.
Still, production gains in most of manufacturing last month were modest. Outside of motor vehicles and selected high-tech industries, manufacturing production edged up just 0.1 percent in July. The Commerce report earlier this week on weak consumer demand continues to be an ongoing concern and could constrain the positive momentum that has been building in the manufacturing sector over the past several months.
On the flip side, positive news on the international front with respect to improving economic conditions in Europe could be a needed shot in arm for American manufacturers. Since nearly a quarter of U.S. manufactured products are exported, improving demand abroad could bolster production in the second half of the year.