In a surprising turn of events, the US factory production witnessed a notable upswing, defying expectations amid ongoing strikes within the automobile industry that have hampered motor vehicle output. According to a report released by the Federal Reserve, production surged by 0.4%, demonstrating a notable rebound from a revised 0.1% dip in August. This robust performance serves as a strong indicator of the economy’s resilient momentum as it enters the final stretch of the third quarter.
The report further delves into the specifics of the US factory production landscape, highlighting a substantial 2.3% annualized increase in durable goods output. However, nondurable goods faced a contrasting fate, experiencing a decline at a rate of 2.4%. Noteworthy was the motor vehicle and parts sector, which managed to rebound with a 0.3% increase, in stark contrast to a 4.1% plummet witnessed in August.
Since mid-September, the United Auto Workers (UAW) union has spearheaded strikes at various factories under the banners of automotive giants General Motors, Ford, and Stellantis, the parent company of Chrysler. Despite this adversity, the manufacturing sector has demonstrated commendable resilience, as evidenced by the September surge. Nevertheless, industry insiders caution that this vigor could be tempered by diminished demand due to elevated interest rates, a trend that has persisted since March 2022. The Federal Reserve has implemented a series of benchmark overnight interest rate hikes, amounting to a substantial 525 basis points increase, currently resting within the 5.25%-5.50% range.
Adding further credence to the report’s optimistic outlook, the Institute for Supply Management’s gauge of national factory activity scaled to a 10-month pinnacle during the same month, showcasing a broader surge in manufacturing prowess. The report also highlighted specific sectors experiencing growth, with notable spikes in wood, primary metals, plastics, and rubber goods production. In contrast, apparel and leather production, alongside printing support goods, witnessed a decline.
Mining output exhibited a commendable 0.4% rise, while utilities production experienced a marginal 0.3% contraction. The broader scope of industrial production indicated a robust 2.5% growth rate throughout the third quarter, a marked improvement from the 0.7% pace witnessed in the preceding quarter. The capacity utilization index for the industrial sector also saw an uptick, increasing by 0.2 percentage points to reach 79.7% in September, aligning with its historical 1972-2022 average.
A closer look at the manufacturing sector revealed an operating rate of 77.8%, a modest 0.4 percentage points below its long-term average. This comprehensive report underscores the resilience of the US manufacturing sector, which has demonstrated remarkable recovery from the challenges posed by the COVID-19 pandemic. However, with strikes continuing to impact the automotive industry, the true extent of their influence on the broader sector remains to be seen. Observers and industry experts will be closely monitoring these developments in the coming months.
Source: Reuters
