Manufacturing Production Disappointed in August

The Federal Reserve said that manufacturing production fell 0.3 percent in August, pulling back from being flat in July and declining for the first time since May. We have seen a lot of volatility in the output data for the manufacturing sector since the spring—essentially seesawing from month to month since March. This has meant that production has grown been less than we would have desired or expected, especially given the more-robust outlook seen in other data sources. In the August data, though, the main culprit was Hurricane Harvey, which the Federal Reserve estimates reduced production by 0.75 percent in August.

Yet, even with that weakness, the longer-term trend for output among manufacturers has been encouraging. Over the course of the past 12 months, manufacturing production has risen 1.5 percent. It was the tenth consecutive positive year-over-year reading for manufacturing output and definite progress from decline of 0.6 percent year-over-year seen in August 2016. Similarly, manufacturing capacity utilization decreased from 75.6 percent in July to 75.3 percent in August. Utilization rates have trended lower since peaking at 75.9 percent in April, but capacity continues to exceed the 74.7 percent rate seen at this time last year.

Similarly, manufacturing capacity utilization decreased from 75.6 percent in July to 75.3 percent in August. Utilization rates have trended lower since peaking at 75.9 percent in April, but capacity continues to exceed the 74.7 percent rate seen at this time last year.

Digging into the underlying data were mixed. Durable goods production increased by 0.3 percent in August, but nondurable goods output fell by 0.9 percent for the month. The largest gains were in the motor vehicles and parts (up 2.2 percent), aerospace and miscellaneous transportation equipment (up 1.7 percent), primary metals (up 1.1 percent), paper (up 0.9 percent), computer and electronic products (up 0.8 percent) and fabricated metal products (up 0.7 percent) sectors. In contrast, apparel and leather (down 2.5 percent), electrical equipment and appliances (down 2.5 percent), chemicals (down 2.2 percent), petroleum and coal products (down 1.6 percent), machinery (down 1.4 percent) and nonmetallic mineral products (down 1.2 percent) were some of the sectors with reduced output in August.

Meanwhile, total industrial production fell by 0.9 percent in August, its first decline since January. All three subcomponents of industrial production were lower for the month. In addition to manufacturing, mining (down 0.8 percent) and utilities activity (down 5.5 percent) were also sharply reduced. Over the past 12 months, industrial production has risen 1.5 percent, down from 2.4 percent in the prior release. Nonetheless, this was still notably better than the 1.3 percent year-over-year decline seen in August 2016. Mining production rose 9.7 percent year-over-year, with utilities production off by 7.8 percent over the past 12 months. In addition, capacity utilization fell from 76.9 percent in July, its best reading since April 2015, to 76.1 percent in August. One year ago, the capacity rate was 75.8 percent.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), 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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