US industrial production unexpectedly slips in July
US industrial production unexpectedly shrank last month, according to data released on Thursday, underlining how factories are struggling with economic uncertainty and the backdrop of a trade war between the US and China.
The data, a measure of manufacturing and mining activity that has sometimes been touted by President Donald Trump, fell 0.2 percent in July from June, well below the survey estimates for a 0.1 percent gain.
Manufacturing, the index’s single biggest component, fell 0.4 per cent, following an upwardly revised 0.6 per cent gain the previous month. The manufacturing index is down 0.5 per cent year on year.
“Manufacturing is in recession, but not in meltdown,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “It is nothing like deep enough to threaten the overall economy.”
The index, produced by the Federal Reserve’s board of governors, is a crucial measure for its open market committee, which makes decisions on monetary policy.
The index has been at times a favourite of the president, who tweeted out industrial production numbers when they grew steadily in 2017 and 2018, driven by both a manufacturing recovery and an increase in oil prices that encouraged new oil rigs in America’s shale heartland.
For the last several months, however, industrial production had been either stagnant or dropping, due in part to the trade war with China.
“Much of the nation’s factory production goes to producing the goods that are exported overseas,” said Chris Rupkey, chief financial economist at MUFG. “It is natural that the reduction in world trade volumes between nations is taking a toll on manufacturing output.”
In July, the production of consumer goods increased, reflecting the enduring confidence of American shoppers. Defence and space equipment rose as well, a consequence of the administration’s consistent defence spending. But the other major market groups declined.
The production of construction supplies, a lead indicator for future building work, fell a full percentage point over the month. Fixed business investment in commercial buildings and hospitals had slowed in the second quarter of 2019; the drop in construction supplies points to further slowing in the third quarter.
Capacity utilisation, a measure of how much of the economy’s resources are being used, also fell over the month to 77.5 per cent, below estimates of 77.8 per cent.