US manufacturing output rebounds; trend still weak

Industrial production increases 0.6% in August

WASHINGTON, Sept 17, (RTRS): US manufacturing output increased more than expected in August, boosted by a surge in machinery and primary metals production, but the outlook for factories remains weak against the backdrop of trade tensions and slowing global economies.

The fairly upbeat report from the Federal Reserve on Tuesday came as officials from the US central bank were due to gather for a twoday policy meeting. Fears that the year-long trade war between the United States and China could derail the longest economic expansion in history are expected to compel the Fed to cut interest rates again on Wednesday.

The economy is in its 11th year of expansion. The Fed lowered borrowing costs in July for the first time since 2008.

Manufacturing production rose 0.5% last month after an unrevised 0.4% drop in July, the Fed said. Economists polled by Reuters had forecast manufacturing output rising 0.2% in August.

Production at factories fell 0.4% in August on a year-on-year basis. Manufacturing, which accounts for about 11% of the US economy, is being hobbled by the US-China trade dispute. The trade war has eroded business confidence, leading to a slump in the sector, which ironically the Trump administration has sought to protect against what it has called unfair foreign competition.

While the so-called hard data showed a rebound in manufacturing output last month, the trend is likely to remain soft, with sentiment surveys still downbeat. A survey early this month showed a measure of national manufacturing activity contracted in August for the first time since August 2016.

Another survey from the New York Fed on Monday showed a measure of business activity in New York state slipped in September. Manufacturers in New York state were also less upbeat about business conditions over the next six months, with a measure of capital expenditures dropping to a three-year low.

Manufacturing is also weakening as the boost from last year’s $1.5 trillion tax package fades. Cuts in the production of Boeing’s 737 MAX aircraft, which was grounded indefinitely in March following two deadly crashes, are also adding to manufacturing’s malaise.

The weakness in manufacturing mirrors a slowing domestic economy. The Atlanta Fed is forecasting gross domestic product rising at a 1.8% annualized rate in the third quarter. The economy grew at a 2.0% pace in the April-June quarter, stepping down from the first quarter’s 3.1% rate.

In this file photo, Ford’s employees work on a Ford Explorer line at Ford’s Chicago Assembly Plant in Chicago. On Sept 17, the Federal Reserve

reports on US industrial production for August. (AP)