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US Manufacturing Shows Strength in October

Nov. 17, 2015
Manufacturing production is up 0.4% in October and, after upward revisions for August and June, the sector receives a dose of much-needed good news that bodes well for 2016.

WASHINGTON, D.C. — U.S. manufacturers showed firm signs of life in October after a mid-year slowdown, but overall industrial output was lower due to the energy sector slump, according to Federal Reserve data released Tuesday.

The Fed’s industrial production index dropped 0.2% in October after a 0.2% drop in September, and showed a bare 0.3% gain from a year ago, mainly due to the sharp contraction in the oil and coal mining sectors, related to the plunge in fuel prices. Utility sector output was also lower, in part because of a very mild autumn in much of the United States, slowing demand.

“Manufacturing production, however, posted 0.4% growth in October and the change in production was revised up for the months of August and June,” MAPI Foundation chief economist Daniel J. Meckstroth said. “Utility production fell 2.5% and mining industry production contracted 1.5% in October.

“The October report is a positive statement about manufacturing growth,” he said, noting that production is up in 13 or the 20 major manufacturing industries, with a 14th flat. “A recent major driver of growth is the ramping up of the construction supply chain; both residential and commercial and industrial construction are strong, and public works construction is growing at a modest pace.”

Manufacturing production could have been even better if not for a steep decline in energy production, with energy consumer products, commercial products and converted fuel down 1.7% in October.

“The headwinds in manufacturing — rising trade deficits, a decline in the supply chain of oil country goods, and high inventories — are at their worst, so the good news that manufacturing did post solid growth in October bodes well for going into 2016,” Meckstroth said.

The manufacturing sector is up 1.9% over the past 12 months. There was strength last month in automobile output, business supplies and construction materials, all important to stronger overall growth in the U.S. economy.

Consumer goods, another key category, was down slightly in the month, though 3.5% higher for the year, with durable goods production up 0.49%.

That durable goods number suggests “that record trade deficits are suppressing production,” said Alan Tonelson, who covers manufacturing and broader economic issues. “In this vein, real manufacturing output still hasn’t recouped all of its recessionary losses, with real production remaining 1.23% below pre-downturn highs. Nonetheless, October’s year-on-year non-durables after-inflation production advance continued a recent trend of annual growth pickup which actually exceeds the rates achieved by durable goods.”

US, Chinese Manufactures Trade Divergence Continues

In related news, the MAPI Foundation released a report Tuesday that says the U.S. global trade deficit in manufactures rose substantially during the third quarter and, despite some moderation in Chinese trade, the gap between the two countries continues to rise.

The U.S. deficit increased by 16%, about $24 billion, in the quarter year-over-year, following 19% growth during the first half of the year, according to Dr. Ernie Preeg, MAPI Foundation senior advisor for international trade and finance.

Preeg estimates a loss of about 150,000 American manufacturing jobs in the quarter, and about a loss of about 600,000 for the year.

The full report also includes a section on U.S. trade with the 11 other countries participating in the Trans-Pacific Partnership.

Copywrite Agence France-Presse, 2015

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