US Factory Output Growing in the Face of Global Slowdown

The latest data shows that manufacturing output in the United States rose for the first time this year, mostly as a result of motor vehicle and parts production countering the noted decline in metals and aerospace equipment.  Motor vehicle parts and production grew 2.4 percent; excluding motor vehicles and parts, overall manufacturing fell flat.  Also, primary metal production fell nearly 2 percent; fabricated metal products output also slipped 0.1 percent.

On Friday, the Federal Reserve said manufacturing production grew by 0.2 percent in the month of May. Analysts had not expected much growth at all, after the sharp decline from the month before, so this was actually quite a welcome reprieve. 

Economists had expressed great concern about the persistent trade war between the United States and China contributing to a larger global slowdown.  And the data suggests this may be inevitable: an earlier report, on Friday, showed industrial output in China surprisingly slowed down to a near 18-year low. 

Taking all of this into consideration, US manufacturing outlook is starting to crack now that last year’s $1.5 trillion tax cut is sputtering out.  The manufacturing sector accounts for 12 percent of the US economy.  Overall industrial output—including utilities and mining—grew by 0.4 percent. Utilities grew more than 2 percent while mining production crawled forward with 0.1 percent growth. 

Manufacturing capacity utilization—which measures how fully companies can use their available resources—edged upward from 75.6 percent in April to 75.7 percent last month.  Overall, though, capacity utilization saw quite a bit of growth, at more than 78 percent. Still, this is 1.7 percent lower than the 1972-2018 average. 

In other sectors, consumer durable goods production saw a little growth—at 2 percent—which contributed to overall consumer goods production rising 0.5 percent.  This, analysts say, reflects consistent strength in US consumer confidence. Also, automotive production grew 3.4 percent with machinery production rising 1.1 percent. Business equipment and high tech production also rose incrementally.

Fed officials have a tendency to look at this metric as a way to measure “slack” in the economy.  This measurement reveals any signals or symptoms if and where any of this slack remains after accounting for growth. With this data, then, economists can better determine how much more room for growth remains before we reach inflationary status.