Manufacturing production fell 0.4 percent in August, declining unexpectedly instead of extending the strong gains of July. Much of this decline stemmed from reduced motor vehicle production (down 7.6 percent in August), but this was likely the result of auto makers’ switching over to a new model year and summertime vacations. Despite the decrease for the month, motor vehicle production has risen 8.1 percent over the past 12 months, the largest increase of any of the major sectors. As such, this month’s figure should not be misinterpreted as a weakness, but instead, it is just a pause in an otherwise upward trend for motor vehicle demand and output. Excluding autos, manufacturing production would have increased 0.1 percent.
Manufacturing production continues to reflect an accelerated pace from the winter months, with the year-over-year pace up from 1.6 percent in January to 4.0 percent in August. Still, this pace was down from 5.2 percent in July. Durable and nondurable goods output has increased 5.6 percent and 2.2 percent year-over-year, respectively. At the same time, manufacturing capacity utilization also eased, down from 77.6 percent in July to 77.2 percent in August.
Nondurable goods production was up 0.2 percent in August, but that was offset by a decline of 0.9 percent for durable goods manufacturers. Computer and electronic products (up 1.3 percent), food, beverage and tobacco products (up 0.4 percent), nonmetallic mineral products (up 0.4 percent), machinery (up 0.3 percent) and chemicals (up 0.3 percent) were examples of sectors with increased output in August.
In contrast, sectors with declining output included apparel and leather products (down 2.3 percent), fabricated metal products (down 1.3 percent), furniture and related products (down 1.0 percent), textile and product mills (down 0.9 percent) and printing and support (down 0.6 percent).
Meanwhile, overall industrial production decreased 0.1 percent, its first decline since the weather-related slowdowns of January. Mining (up 0.5 percent) and utilities (up 1.0 percent) output were both higher. Total capacity utilization edged lower, down from 79.1 percent to 78.8 percent.
In conclusion, manufacturers continue to be upbeat about activity in the second half of this year, but much like the jobs data out a couple weeks ago, the production figures suggest that there was softness in August. Instead of modest gains in output in August as expected, production in the sector declined 0.4 percent, mainly on slower activity in the auto sector. Nonetheless, the outlook remains mostly optimistic, and there were likely retooling issues related to the declines in motor vehicle production.
Still, manufacturers would like to see stronger economic activity moving forward, and for that reason, policymakers should focus on pro-growth initiatives that will allow them to expand and flourish.
Chad Moutray is the chief economist, National Association of Manufacturers.