The Federal Reserve Board said that manufacturing production rose 0.1 percent in September, extending the 0.5 percent gain of August. As such, the pickup in manufacturing activity that started in August continued, albeit at a modest pace. Over the course of the past 12 months, manufacturing output has risen 2.6 percent. While this is certainly better than the 1.4 percent annual pace observed in July, there is also room for improvement. Ideally, we would like to see production growth of 4 percent or more.
Manufacturing capacity utilization was unchanged for the month at 76.1 percent. Utilization in the sector has not changed much over the course of this year. Year-over-year growth for manufacturing capacity utilization was 1.6 percent, slower than the growth rate for the production figures.
Digging into the September data, durable goods production rose 0.5 percent, with year-over-year growth of 4.8 percent. This was offset, however, by a 0.3 percent decline in output in the nondurable goods sector. Nondurable goods production has risen just 0.6 percent over the past 12 months, lagging behind its durable goods sector peers.
For the month, the largest monthly manufacturing sector gains were in motor vehicles and parts (up 2.0 percent), machinery (up 1.5 percent), apparel and leather (up 1.5 percent), plastics and rubber products (up 0.7 percent), petroleum and coal products (up 0.5 percent), and wood products (up 0.5 percent). In contrast, declining production was noted in the printing and support (down 1.1 percent), textile and product mills (down 0.7 percent), furniture and related products (down 0.7 percent), chemicals (down 0.6 percent), and computer and electronic products (down 0.5 percent) sectors, among others.
Meanwhile, overall industrial production increased 0.6 percent in September, building on the 0.4 percent gain of August. Strong growth in utilities (up 4.4 percent) boosted the September figure, with slower paces of growth in both manufacturing (up 0.1 percent, as discussed above) and mining (up 0.2 percent). On an annualized basis, industrial production accelerated to 3.2 percent growth over the past 12 months, up from 2.8 percent observed the month before.
The more-positive industrial production numbers also carried through to the capacity utilization figures. Total capacity utilization rose from 77.9 percent in August to 78.3 percent in September, the highest utilization rate since July 2008.
In conclusion, the industrial production news released this morning was more mixed than the headline figure might suggest. While overall output picked up strongly for the month, this was due largely to a recovery in the utilities sector. Note that prior to September, production amongst utilities had declined for five straight months, with year-over-year growth of 2.5 percent. In contrast, output increased more slowly for manufacturing and mining.
The bottom line is that manufacturing activity has picked up in the past couple months, which has definitely been a positive sign. Yet, the year-over-year pace of 2.6 percent suggests that there continue to be some broader weaknesses for manufacturers that still need to be addressed. I expect for manufacturing production to continue to accelerate over the coming months, but persistent uncertainties in the marketplace have not been helpful. For instance, the government shutdown will probably negatively impact the October data when they are released on November 15.
Chad Moutray is the chief economist, National Association of Manufacturers.
Latest posts by Chad Moutray (see all)
- New Durable Goods Orders Remained Weak in August - September 28, 2016
- Conference Board: Consumer Confidence Jumped Strongly in September to a 9-Year High - September 27, 2016
- Richmond Fed: Manufacturing Activity Remained Weak in September - September 27, 2016