US manufacturing output races to 30-month high

[WASHINGTON] Production at US factories rebounded more than expected in October as the drag from Hurricane Ida faded and motor vehicle output picked up, but manufacturing continues to be constrained by shortages of raw materials and labor.

Manufacturing output surged 1.2 per cent last month to its highest level since March 2019, after falling 0.7 per cent in September, the Federal Reserve said on Tuesday. Economists polled by Reuters had forecast manufacturing production rising 0.7 per cent.

Output increased 4.5 per cent compared with October 2020.

Manufacturing, which accounts for 12 per cent of the US economy, is being underpinned by businesses desperate to rebuild depleted inventories.

Spending shifted to goods from services over the course of the Covid-19 pandemic, straining global supply chains. Raw materials such semiconductors are in short supply. Workers are also scarce, hampering the delivery of materials to factories as well as the shipment of finished goods to markets.

Even with spending rotating back to services as coronavirus infections driven by the Delta variant subside, demand for goods remains strong.

Production at auto plants rebounded 11.0 per cent last month after declining for two straight months. Excluding autos, manufacturing output rose 0.6 per cent in October.

Consumer goods production rebounded 1.4 per cent. But machinery production dropped 1.3 per cent because of an ongoing strike at John Deere. Last month's jump in manufacturing output combined with a 4.1 per cent rebound in mining and a 1.2 per cent rise in utilities to boost industrial production by 1.6 per cent. That followed a 1.3 per cent drop in September.

Capacity utilisation for the manufacturing sector, a measure of how fully firms are using their resources, increased 0.9 percentage point in October to 76.7 per cent, the highest since January 2019. Overall capacity use for the industrial sector rose to 76.4 per cent from 75.2 per cent in September. It is 3.2 percentage points below its 1972-2020 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