PRODUCTION at US factories increased more than expected in July as output rose at motor vehicle plants and elsewhere, pointing to underlying strength in manufacturing despite ebbing business confidence.
Manufacturing output rebounded 0.7 per cent last month after declining 0.4 per cent in June, the Federal Reserve said on Tuesday (Aug 16). Economists polled by Reuters had forecast factory production would rise 0.2 per cent. Output increased 3.2 per cent compared to July 2021.
Manufacturing, which accounts for 11.9 per cent of the US economy, remains supported by strong demand for goods even as spending is gradually shifting back to services. But risks are rising, with retailers sitting on excess inventory, especially of apparel.
A strong US dollar as a result of tighter monetary policy could make US exports more expensive. The US central bank has hiked its policy rate by 225 basis points since March. The aggressive monetary policy tightening has raised fears of a recession, hurting business sentiment.
Production at auto plants surged 6.6 per cent last month. Excluding motor vehicles, manufacturing rose 0.3 per cent. Output of long-lasting manufactured consumer goods increased 3.5 per cent, while that of nondurable consumer goods fell 0.3 per cent.
Mining production increased 0.7 per cent, continuing to be underpinned by oil and gas extraction. Output at utilities fell 0.8 per cent. The rise in manufacturing and mining output helped to lift overall industrial production by 0.6 per cent. Industrial output was unchanged in June.
Capacity utilisation for the manufacturing sector, a measure of how fully firms are using their resources, increased half a percentage point to 79.8 per cent in July. It is 1.6 percentage points above its long-run average. Overall capacity use for the industrial sector rose to 80.3 per cent last month from 79.9 per cent in June. It is 0.7 percentage point above its 1972-2021 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