The Federal Reserve Board said that industrial production declined 0.4 percent in October, reversing the 0.2 percent gain in September. Industrial production peaked in July at 97.9. In October it was 96.6, a decrease of 1.4 percent in just three months. This suggests what we already knew – the manufacturing economic environment remains choppy.
Uncertainties related to the fiscal cliff and slowing global growth are challenging sales and forcing business leaders to stall or curtail activity. Beyond these points, Hurricane Sandy impacted production in some areas. The Philadelphia Fed yesterday said that the average manufacturer in its region with reduced activity lost 2.2 days of down time.
Manufacturing production fell 0.9 percent in October, with 1.7 percent less production than in July. The decrease for the month was broad-based. Only two sectors – plastics and rubber products (up 0.2 percent) and nonmetallic mineral products (up 0.1 percent) – cited increased production levels in October. Outside of major sectors, high-technology industries report higher production, up 1.1 percent, on increased demand for computers and communications equipment.
Both durable and nondurable goods production was lower, down 0.6 percent and 1.0 percent. Production was down significantly in October in a number of sectors. This includes: apparel and leather (down 2.1 percent), machinery (down 1.9 percent), food and beverages (down 1.8 percent), printing and support (down 1.5 percent), electrical equipment and appliances (down 1.4 percent), and paper (down 1.2 percent).
Meanwhile, capacity utilization also fell. For the larger economy, it shifted from 79.2 percent in July to 78.2 in September to 77.8 percent in October. This suggests a significant decline in capacity over in recent months. For manufacturers, the decrease has been from 78.2 percent to 77.3 percent to 76.6 percent over the same time periods.
Today’s report is a clear sign that manufacturing activity remains weak in a large variety of sectors. As policymakers seek to address the fiscal cliff, they should be cognizant of the headwinds that are facing the sector right now. Despite the fact that manufacturers have provided out-sized output and employment contributions since the end of the recession, the sector is clearly facing serious challenges now. Manufacturers remain worried about a possible economic downturn in the U.S. from the fiscal cliff, a recession in Europe and slowing global growth, and other uncertainties and regulations which are hampering growth and sales.
It will be important for our political leaders to do what is necessary to reverse these trends, allowing manufacturers to once again grow and flourish.
Chad Moutray is chief economist, National Association of Manufacturers.
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