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WASHINGTON: US manufacturing output rose more than expected in August, boosted by higher output of machinery and primary metals, but mill prospects remain weak in a context of trade and slowdown of the global economy.
The Federal Reserve said Tuesday that manufacturing output rose 0.5% last month after an unreviewed drop of 0.4% in July.
Economists polled by Reuters forecast a 0.2% increase in manufacturing output in August. Production in factories fell 0.4% in August compared with the previous year.
The manufacturing sector, which accounts for about 11% of the US economy, is hampered by a year-long trade war between the United States and China and the slowdown in global economic growth. The trade war has eroded business confidence, leading to a collapse of the sector, which paradoxically was tempted by the Trump government to protect itself from what it called unfair foreign competition.
A survey conducted earlier this month revealed a measure of national manufacturing activity contracted in August for the first time since August 2016. The manufacturing sector also suffered from a surplus inventory, especially in the automotive sector.
The fear that the consequences of the trade stalemate will affect the entire economy should force the Fed to further reduce its interest rates on Wednesday in order to maintain the longest expansion of its economy. history, that of the eleventh year, now.
US central bank officials were due to meet on Tuesday for a two-day meeting. The Fed cut borrowing costs in July for the first time since 2008.
Motor vehicle and parts production fell 1.0% last month, following a 0.5% gain in July. Excluding motor vehicles and their parts, manufacturing output rose 0.6% in August, following a 0.5% decline the month before. Machine production rebounded 1.6% after dropping 1.7% in July.
The jump in manufacturing output in August, combined with a rebound of 1.4% in the extractive industries, led to a 0.6% increase in industrial production last month. This is the largest increase in industrial production since August 2018, after a dip of 0.1% in July. Industrial production rose 0.4% year-on-year in August.
Oil and gas drilling was down 2.5% last month, down for the second month in a row. Utilities output rose 0.6% last month.
The capacity utilization of the manufacturing sector, which measures the full use of resources by businesses, increased from 75.4% in July to 75.7% in August. Overall capacity utilization in the industrial sector increased from 77.5% in July to 77.9%.
It is 1.9 percentage points below its 1972-2018 average. Fed officials tend to look at capacity utilization measures to indicate how much "room for maneuver" remains in the economy – how much growth can be again replaced before becoming inflationary.
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