United States manufacturing boosted by a surge in machinery and primary metals production, increased more than expected in August. However, against the backdrop of trade tensions and slowing global economies, the outlook for factories remains weak.
On Tuesday, The Federal Reserve said that the manufacturing rose 0.6% last month after an unrevised 0.4% drop in July.
Manufacturing output rose 0.2% in the August forecast of the economists polled by Reuters. On a year-on-year basis, production at factories fell 0.4% in August.
Manufacturing is being hobbled by a year-old trade war between the United States and China and slowing global economic growth, which accounts for about 11% of the U.S. economy. The Trump administration has sought to protect against what it called unfair foreign competition but ironically the trade war has eroded business confidence, leading to a slump in the sector.
Contracted in August, for the first time since August 2016, a survey early this month showed a measure of national manufacturing activity. Manufacturing, especially in the automotive industry, has also been hurt by an inventory overhang.
On Wednesday, fears that the effects of the trade impasse could spill over to the broader economy are expected to compel the Fed to cut interest rates again, to keep the longest expansion in history, now on its 11th year, on track.
United States Bank Meeting
A two-day meeting on Tuesday is set to gather the officials from the United States bank. For the first time since 2008, The Fed lowered borrowing costs in July.
After increasing 0.5% in July, motor vehicles and parts production fell 0.1% last month. Manufacturing output increased 0.6% in August after declining 0.5% in the prior month, excluding motor vehicles and parts. And after dropping 1.7% in July, machinery output rebounded 1.6%.
A 0.6% increase in industrial production last month was due to the jump in manufacturing output in August together with a 1.4% rebound in mining. Since 2018, it was the largest gain in industrial output and followed a 0.1% dip of July. In August, industrial production rose 0.4% on a year-on-year basis.
Declining for a second straight month, oil and gas well drilling fell 2.5% last month. While, last month, utility output increased by 0.6%.
A measure of how fully firms are using their resources, capacity utilization for the manufacturing sector increased to 75.7% in August from 75.4% in July. Also, the overall capacity use for the industrial sector rose to 77.9% from 77.5%.
Below its 1972-2018 average, it’s 1.9% points below. Therefore, the capacity use measures for signals of how much “slack” remains in the economy and how far growth has room to run before it becomes inflationary, officials at the Fed tend to look for those.
