Industrial Production Rises in August as Regional Manufacturing Surveys Show Contraction
The Federal Reserve reported that industrial production was up 0.2 percent in August, its fourth straight month of positive growth. Since August 2010, industrial production has risen 3.4 percent. Likewise, manufacturing production rose 0.5 percent in August and 3.8 percent for the year. Manufacturers’ capacity utilization also edged 0.4 percent higher in August.
Production at the sector level was more mixed, with 10 sectors experiencing gains in production and 9 having declines. Durable goods sectors had the strongest increases and were up 0.4 percent for the month; nondurables rose 0.1 percent.
The sectors with the greatest increases include: aerospace and miscellaneous transportation (up 2.2 percent), motor vehicles and parts (up 1.7 percent), computer and electronic products (up 1.3 percent), primary metals (up 1.2 percent) and furniture and related products (up 1.2 percent). The largest declines were in textile and product mills (down 1 percent), printing and support (down 0.9 percent) and wood products (down 0.8 percent).
This report shows that manufacturing production continues to rise, led by strong growth once again in the transportation sectors. A rebound in motor vehicle sales and production from the supply chain issues of the spring and strong aerospace numbers significantly added to rising production. The overall industrial production figure was weighed down by weakness in the utility sector, which fell 3 percent in August, reversing the 2.8 percent increase last month. Mining production continues to increase, up 1.2 percent, its sixth consecutive month of gains.
Once again the positive official numbers from the Federal Reserve Board differ from the sentiment surveys conducted by its regional banks. The Empire State Manufacturing Survey from the Federal Reserve Bank of New York, for instance, shows that manufacturing activity continues to contract in the state, with its index of general business conditions falling from -7.7 in August to -8.8 in September. This index had been 21.7 in April, illustrating its decline in recent months; the September figure represented the fourth consecutive month of declining activity.
The New York survey notes contracting new orders, shipments, inventories and employment. The index for prices paid ticked up somewhat, reflecting faster growth in raw material prices; yet, the index for prices received also edged higher. Respondents said that their selling prices rose 1.4 percent on average during the past twelve months, and they expect their prices to go up 1 percent over the next year. Nonetheless, pricing pressures remain elevated overall, especially as manufacturers are not able to pass along the bulk of the increases in raw material costs.
On the bright side, the respondents to this survey were more optimistic about the next six months than in the previous report, with higher rates of new orders, shipments and capital expenditures expected. Employment, though, is expected to remain unchanged overall, which was down from the slight growth estimate in the August survey.
Mirroring the Empire State survey, the Philadelphia Federal Bank released a September updates to its Business Outlook Survey, with its general business activity index improving from -30.7 in August to -17.5 in September. The Philly survey was by far the most pessimistic of any of the regional manufacturing reports last month, and this report shows that activity in the region remains very weak. New orders, shipments, unfilled orders, delivery times and the average workweek all contracted. Raw material prices grew, with the prices received for goods also increasing, much like what was found in the New York survey. The good news is that employment went from contracting last month (with an index reading of -5.2) to expanding somewhat this month (5.8).
Manufacturers in the Mid-Atlantic region tend to be more optimistic about the next six months, with the general business activity increase for expected activity rising from 1.4 in August to 21.4 in September. Most measures of activity are expected to grow, including new orders, production and employment. Still, in a series of special questions, respondents were split regarding third quarter production; about 41 percent expect production to fall, while another 41 percent expect increased production. In the fourth quarter, more expect to see declining production (49 percent) than increasing production (38 percent). This provides an interesting contrast, with the overall indices more optimistic than the special survey question responses.
Chad Moutray is chief economist, National Association of Manufacturers.