US manufacturing production rebounds in August

[WASHINGTON] US manufacturing output increased more than expected in August, boosted by a surge in machinery and primary metals production, but the outlook for factories remains weak against the backdrop of trade tensions and slowing global economies.

The Federal Reserve said on Tuesday manufacturing production rose 0.5 per cent last month after an unrevised 0.4 per cent drop in July.

Economists polled by Reuters had forecast manufacturing output rising 0.2 per cent in August. Production at factories fell 0.4 per cent in August on a year-on-year basis.

Manufacturing, which accounts for about 11 per cent of the US economy, is being hobbled by a year-old trade war between the United States and China and slowing global economic growth. The trade war has eroded business confidence, leading to a slump in the sector, which ironically the Trump administration has sought to protect against what it called unfair foreign competition.

A survey early this month showed a measure of national manufacturing activity contracted in August for the first time since August 2016. Manufacturing has also been hurt by an inventory overhang, especially in the automotive industry.

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 on Wednesday to keep the longest expansion in history, now in its 11th year, on track.

Officials from the US central bank were due to gather for a two-day meeting on Tuesday. The Fed lowered borrowing costs in July for the first time since 2008.

Motor vehicles and parts production fell 1.0 per cent last month after increasing 0.5 per cent in July. Excluding motor vehicles and parts, manufacturing output increased 0.6 per cent in August after declining 0.5 per cent in the prior month. Machinery output rebounded 1.6 per cent after dropping 1.7 per cent in July.

The jump in manufacturing output in August together with a 1.4 per cent rebound in mining, lead to a 0.6 per cent increase in industrial production last month. That was the largest gain in industrial output since August 2018 and followed a 0.1 per cent dip July. Industrial production rose 0.4 per cent on year-on-year basis in August.

Oil and gas well drilling fell 2.5 per cent last month, declining for a second straight month. Utilities output increased 0.6 per cent last month.

Capacity utilisation for the manufacturing sector, a measure of how fully firms are using their resources, increased to 75.7 per cent in August from 75.4 per cent in July. Overall capacity use for the industrial sector rose to 77.9 per cent from 77.5 per cent in July.

It is 1.9 percentage points below its 1972-2018 average. Officials at the Fed tend to look at capacity use measures for signals of how much "slack" remains in the economy - how far growth has room to run before it becomes inflationary. 

REUTERS