Increases in U.S. Manufacturing Production Slowed in August

U.S. manufacturing production rose in August by less than forecast, signaling a more moderate pace of progress for factories as the economy recovers from pandemic-related shutdowns earlier this year.

Output at factories increased 1% from the prior month after an upwardly revised 3.9% gain in July, Federal Reserve data showed Tuesday. The median projection in a Bloomberg survey of economists was for a 1.3% rise. Manufacturing capacity utilization increased to 70.2%.

Total industrial production, which also includes mining and utility output, rose 0.4% in August after an upwardly revised 3.5% advance a month earlier. Mining was restrained by a temporary decline in oil and gas extraction related to tropical storms along the Gulf Coast.

While industrial output in the previous two months posted the sharpest gains since 1959, the burst of production is tapering off as the Fed’s index remains well below pre-lockdown levels. Nonetheless, manufacturing will continue to benefit from lean inventories, steady domestic sales and a pickup in overseas demand.

In a separate report Tuesday, manufacturing in New York state expanded in September at the second-fastest pace since 2018, indicating more momentum for the industry.

Stocks rose on optimism about the economy’s prospects, the dollar eased and the yield on the 10-year Treasury note was little changed.

The Fed’s report showed that total capacity utilization, including factories, mines and utilities, edged up to 71.4% from July’s 71.1%. Still, the plant-use rate is well below the 76.9% seen in February. Unused capacity weighs on corporate profits because capital is underutilized. It also signals that business investment in new equipment will remain depressed, which could weigh on economic growth. Further, employment in the manufacturing sector remains far below pre-pandemic levels.

Production of motor vehicles and parts dropped 3.7% after sharp advances in the prior three months, while factory output excluding auto production increased 1.4% after a 1.9% increase. Utility output dropped 0.4% in August.

Mining output dropped 2.5% as oil and gas well drilling decreased 1.2% after an 8% decline a month earlier. Drilling has plummeted 71% from a year earlier after weaker oil prices prompted exploration and production companies to slash projects.

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