Manufacturing production declined 0.5 percent in August, falling back after rebounding strongly in July. Overall, these data continue to show the sector struggling with a number of economic headwinds, with output down in three of the past four months. Capacity utilization for manufacturers increased from 76.2 percent to 75.8 percent. On a year-over-year basis, manufacturing production increased 1.4 percent in August, down from 1.5 percent in July. This represented a sharp deceleration in output from the 4.3 year-over-year pace observed in January.
This finding is consistent with the latest results of the NAM Manufacturers’ Outlook Survey, which found respondents less upbeat about sales and production growth today than at the end of last year. The strong U.S. dollar, reduced crude oil prices and continuing economic challenges abroad have dampened the demand for manufactured goods and renewed anxieties about the coming months. Indeed, as a result, 64.2 percent of manufacturers completing the NAM survey felt that the Federal Reserve should not be in a hurry to raise short-term rates – a timely finding given the Federal Open Market Committee meeting which starts tomorrow.
Looking specifically at the August industrial production numbers, 10 of the 19 major manufacturing sectors experienced declining output for the month. This included significant decreases for motor vehicles and parts (down 6.4 percent), aerospace and miscellaneous transportation equipment (down 1.2 percent), fabricated metal products (down 1.2 percent), chemicals (down 0.6 percent) and petroleum and coal products (down 0.5 percent). The sharp decline in motor vehicles production followed a 10.6 percent jump the month before, with the sector still a bright spot overall, up 6.9 percent year-over-year. There were also sectors with notable gains, including nonmetallic mineral products (up 1.8 percent), machinery (up 1.6 percent), miscellaneous durable goods (up 1.6 percent), electrical equipment and appliances (up 0.6 percent) and plastics and rubber products (up 0.6 percent).
Meanwhile, total industrial production decreased by 0.4 percent in July, a disappointment after rising 0.9 percent in July. In addition to declines in manufacturing, mining production was also lower, down 0.6 percent for the month. Output from utilities was up 0.6 percent. Year-over-year growth reflects the softness experienced over the past 12 months, up just 0.9 percent and down from 1.3 percent the month before. This continues to reflect a deceleration from the 4.5 percent pace observed in January. Capacity utilization decreased from 78.0 percent in July to 77.6 percent in August.
Overall, this report illustrates the significant challenges faced by manufacturers in the current global economic environment, and it is hard not be disappointed by activity year-to-date. With that in mind, policymakers should seek to enact measures that will increase the competitiveness of the sector internationally to help buttress some of the headwinds in the market right now. This includes trade policies that help to open new markets for our products, but it also begs the need for comprehensive tax reform and smarter regulatory policies.
Chad Moutray is the chief economist, National Association of Manufacturers.