The 0.6% m/m decline in industrial production in September isn’t necessarily a sign that the broader economic recovery is in jeopardy when we know that retail sales rose strongly last month. But it is still a concern that the industrial recovery appears to be stalling with output well below its pre-pandemic level.
Manufacturing output stuck well below February level
- The 0.6% m/m decline in industrial production in September isn’t necessarily a sign that the broader economic recovery is in jeopardy when we know that retail sales rose strongly last month. But it is still a concern that the industrial recovery appears to be stalling with output well below its pre-pandemic level.
- Admittedly, the headline decline was partly due to a 5.6% m/m plunge in utilities output, as temperatures returned to seasonal norms across most of the country after some unusually warm summer weather. Mining output actually saw a surprise 1.7% m/m rise, driven by gains in both crude oil extraction and mining support services. The earlier rebound in crude oil prices should feed through to a continued recovery in drilling activity over the months ahead.
- But the main drag on headline production was a 0.3% m/m fall in manufacturing output, as further gains in metals and aerospace production were offset by big falls in production of computers & electronics and motor vehicles. Although previous months’ gains were revised up slightly, this leaves manufacturing output more than 6% below its February level and lagging well behind the recovery in consumption, particularly following the stronger 1.9% m/m rise in retail sales reported earlier today. (See Chart 1.) Part of that gap is being made up by imports, which have rebounded relatively rapidly in recent months. Nevertheless, this suggests that goods prices could yet come under renewed upward pressure over the next few months as inventories remain lean. Indeed, we also learned today that the business inventory-to-sales ratio fell to a six-year low in August.
- The latest survey evidence suggests that manufacturing output should begin to pick up again soon, and we expect it will resume its gradual recovery over the months ahead. That said, the recent resurgence in coronavirus infections both at home and abroad poses a clear downside risk, with export demand likely to suffer and factories facing the threat of renewed closures if the US outbreak worsens significantly.
Chart 1: Retail Sales & Manufacturing Output (Feb ’20 = 100)
Table 1: Industrial Production
By Industry (%m/m)
By market (%m/m)
Andrew Hunter, Senior US Economist, firstname.lastname@example.org