The Federal Reserve Board reported that industrial production increased 0.6 percent in July. This was slightly higher than expected and above the 0.1 percent gains experienced in both May and June. Capacity utilization was also higher, rising from 78.9 percent to 79.3 percent.

Manufacturing production increased 0.5 percent in July, matching the similar increase in June. Year-to-date, manufacturers have produced 5 percent more. In July, the durable goods sector was once again the dominant driver of growth, up 0.8 percent, with nondurable goods production flat for the month. Manufacturing capacity utilization increased from 77.6 percent to 77.8 percent.

The largest gains in manufacturing production came from the motor vehicles (up 3.3 percent), aerospace (up 1.6 percent), computers and electronic products (up 1.5 percent), primary metals (up 1.1 percent), and miscellaneous durable goods (up 1.2 percent) sectors. These were counterbalanced by declines in machinery (down 1.9 percent), wood products (down 1.8 percent), and textile and product mills (down 1.5 percent), among others. Overall, of the 19 major sectors, seven of them experienced declines.

These figures suggest that manufacturing continues to help drive the economy, even with so many headwinds both domestically and abroad. Its also worth noting that much of the gain this month stemmed from higher motor vehicle production. If you were to exclude autos from the analysis, manufacturing production would have increased just 0.2 percent. That being said manufacturers remain deeply concerned about the “fiscal cliff,” the recession in Europe, and the impact of the upcoming election.

Other surveys tend to reflect these anxieties more. For instance, the New York Federal Reserve Bank’s Empire State Manufacturing Survey said that overall business conditions weakened in August. The composite index fell from 7.4 in July to -5.9 in August, suggesting increased pessimism in the District. In fact, half of all respondents said that conditions were the same, with nearly 28 percent suggesting that they were lower.

As we have seen with other recent regional sentiment surveys, reduced new orders were the main culprit. New orders contracted for the second straight month, worsening from -2.7 to -5.5. At the same time, manufacturers in the region continue to experience modest growth in their current levels of production; however, this activity is at a much slower pace. The index for shipments dropped from 10.3 to 4.1. This perhaps explains why employment remains relatively strong, down from 18.5 to 16.5, and the average workweek edged higher.

Respondents also continue to be cautiously optimistic about future activity, even as uncertainty about business prospects were cited as a top concern in a series of special questions. The forward-looking business conditions index decreased from 20.2 to 15.2. Behind this number, though, manufacturers are becoming less confident that new orders will increase, with the index of future new orders dropping from 13.6 to 2.4. This is forcing some easing in a number of other indicators, including future shipments, employment, and capital spending.

In short, the industrial production numbers provide some comfort as they show increased activity, particularly in the automotive and other durable goods sectors. Yet, the Empire State survey highlights many concerns moving forward, with slower new orders and worries about the future direction of the economy due to the looming fiscal cliff and and the regulatory environment facing businesses.

Chad Moutray is chief economist, National Association of Manufacturers.

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