Industrial Production (Aug.) - Capital Economics
US Economics

Industrial Production (Aug.)

US Data Response
Written by Paul Ashworth

The muted 0.4% m/m increase in industrial production in August wasn’t quite as bad as it looks, with Hurricane Laura causing a temporary 2.5% m/m drop off in mining production and the return to seasonal temperatures reduced the demand for AC to normal levels, resulting in a 0.4% m/m drop back in utilities output.

Recovery in manufacturing begins to wane

  • The muted 0.4% m/m increase in industrial production in August wasn’t quite as bad as it looks, with Hurricane Laura causing a temporary 2.5% m/m drop off in mining production and the return to seasonal temperatures reduced the demand for AC to normal levels, resulting in a 0.4% m/m drop back in utilities output.
  • Nevertheless, even though manufacturing output increased by a stronger 1.0% m/m last month, it remains 7.2% off its pre-pandemic February level. Motor vehicle output fell by 3.7% m/m, but that was always a danger after the 31.7% m/m surge in July, which took output back to its pre-pandemic level. The problem is that July figure was distorted upwards because the seasonal adjustments were “expecting” a weaker number since retooling shutdowns usually lower production each July. Looking ahead, with motor vehicle sales strong and inventories at very low levels, we expect production to climb above its pre-pandemic level over the remainder of this year.
  • The turnaround in the motor vehicle sector is already the big success story, with most of the more than 80% collapse in production between February and April now recovered. (See Chart 1.) But other sectors are still struggling. In particular, the primary metals, fabricated metals and electrical equipment industries have seen little recovery in output since April.
  • Aircraft production is also still significantly lower than its pre-pandemic level, but it increased 4.5% m/m in August following an even bigger gain in July and, given Boeing’s woes and the collapse of the global travel industry, the recovery is stronger than we would have expected.
  • Overall, the recovery in production is still lagging the turnaround in spending, which is very unusual and has led to a shortage of inventory that is beginning to put upward pressure on goods prices.

Chart 1: % Change in Manufacturing Output

Source: Refinitiv

Table 1: Industrial Production

Industrial Production

By Industry (%m/m)

By market (%m/m)

Cap. Utilisation

%m/m

%y/y

Manufacturing

Utilities

Mining

Cons. Goods

Bus. Equip.

(%)

Jun

6.1

-10.9

7.5

1.3

3.0

8.4

11.8

68.7

Jul

3.5

-7.6

3.9

3.8

1.4

5.0

6.6

71.1

Aug

0.4

-7.9

1.0

-0.4

-2.5

0.3

1.9

71.4

Source: Refinitiv


Paul Ashworth, Chief US Economist, paul.ashworth@capitaleconomics.com