According to the Federal Reserve, manufacturing production fell by 0.4 percent in August. After two straight months of gains, this news was disappointing, even as it mirrored weaknesses found in other economic indicators in August. Moreover, manufacturing production has declined over the past 12 months, the first year-over-year decline since December. In addition, manufacturing capacity utilization decreased from 75.2 percent to 74.8 percent, a three-month low. As such, this report highlights the tremendous challenges in the sector. Nonetheless, manufacturers continue to be cautiously hopeful for increased activity over the coming months, as noted in our latest survey.
The current softness, though, means that policymakers need to focus more on priorities that will grow the economy and increase competitiveness. It also suggests that the Federal Reserve is likely to wait to raise rates. Along those lines, 45.5 percent of respondents to our survey felt that the Federal Open Market Committee would hike rates in December.
Looking more closely at the August data, durable and nondurable goods production declined 0.4 percent and 0.2 percent, respectively. Just five of the 19 major sectors within manufacturing had increased output for the month, with the data mostly lower. The segments with higher production in August were computer and electronic products (up 1.0 percent), paper (up 0.8 percent), furniture and related products (up 0.6 percent), motor vehicles and parts (up 0.5 percent) and food, beverage and tobacco products (0.3 percent).
In contrast, the largest declines were seen in the textile and product mills (down 2.1 percent), machinery (down 1.9 percent), wood products (down 1.6 percent), electrical equipment and appliances (up 1.6 percent), printing and support (up 1.4 percent), miscellaneous durable goods (down 1.4 percent), nonmetallic mineral products (down 1.2 percent) and primary metals (down 1.1 percent) sectors.
In the larger economy, industrial production also fell by 0.4 percent, with a year-over-year decline of 1.1 percent. Beyond manufacturing, mining output increased by 1.1 percent; whereas, utilities production decreased by 1.4 percent. The headline year-over-year industrial production rate was pulled lower by sharply reduced mining activity, down 9.3 percent since August 2015. Total capacity utilization dropped from 75.9 percent to 75.5 percent, returning to the rate seen in June.