Manufacturing Production Accelerated in August, Boosted by Strong Gains in Auto Output

By September 16, 2013Economy

The Federal Reserve Board said that industrial production increased 0.4 percent in August, rebounding from being unchanged in July. The pickup in activity was widely expected, especially given the other data which have shown the same. On a year-over-year basis, industrial production has risen 2.7 percent, a nice improvement from the 1.4 percent annual pace observed last month.

The acceleration in manufacturing activity was even stronger for the month, up 0.7 percent. This follows a 0.4 percent decline in July. (July’s figure was revised from the earlier estimate of a 0.1 percent decrease). This was the fastest growth rate of 2013 so far. Over the past 12 months, manufacturing output has risen 2.6 percent, double the pace of 1.3 percent noted last month. With that said, we would ideally see production growing 4 percent or more, so we are still not seeing the robust industrial growth that we would like to see.

Manufacturing capacity utilization rose from 75.7 percent in July to 76.1 percent in August. This brings the utilization rate back to where it was in June. Year-over-year growth for manufacturing capacity utilization was 1.5 percent, slower than the growth rate for the production figures.

A large jump in motor vehicle production helped to explain much of the manufacturing output gain in August. Auto production increased a whopping 5.2 percent in August, recovering from the 4.5 percent decline in July. We saw a similar shift when the employment numbers were released a couple weeks ago. In that case, it was said that automakers had resumed production in August after retooling their equipment for the new model year in July.

Both durable and nondurable goods sectors saw increased production, up 1.2 percent and 0.1 percent, respectively. The durable goods figure was heavily influenced by the gains in motor vehicles output. Other sectors with strong gains for the month included wood products (up 1.7 percent), computer and electronic products (up 1.6 percent), furniture and related products (up 1.5 percent), apparel and leather (up 1.2 percent), paper (up 1.1 percent), and electrical equipment and appliances (up 1.0 percent), among others. In all, 14 of the 19 major manufacturing sectors had increased production in August.

Sectors with declining production for the month included miscellaneous durable goods (down 0.8 percent), petroleum and coal products (down 0.7 percent), primary metals (down 0.3 percent), chemicals (down 0.2 percent), and plastics and rubber products (down 0.2 percent).

In conclusion, the strong increases in manufacturing production in August were welcome news, with gains fairly broad-based. Moreover, the pace of output appears to be picking up, with year-over-year growth for manufacturers of 2.6 percent. Overall, manufacturers are seeing a modest acceleration in activity lately, rebounding from slowness in the spring and summer months.

Yet, even with this progress and cautious optimism for coming months, it is clear that manufacturers are not seeing the robust growth that we would like to have. With that in mind, policymakers should adopt pro-growth strategies that enable the sector to grow and flourish moving forward, building on the better numbers seen today.

Chad Moutray is the chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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