October industry output up 1.1%
Total industrial production, which includes mining and utility output, rose 1.1% in October after a 0.4% decrease a month earlier, recovering much of the spring decline caused by the virus pandemic.
It was a rebound after a downturn in September, but production still remains below pre-pandemic levels, the Federal Reserve reported Tuesday. The rise was slightly better than the 1% analysts were expecting and, combined with an upward revision in September’s number, is unexpected good news as coronavirus cases spike across the U.S. and states re-instate restrictions.
Excluding mines and utilities, output at factories increased 1% from September, matching the median forecast in a Bloomberg survey of economists, after an upwardly revised 0.1% gain in September. October’s output is still about 5% below its level in February before the coronavirus outbreak swept through the U.S., closing businesses, factories and schools.
The October gain in factory output was broad-based with increased production of consumer goods, business equipment and construction supplies that indicates a solid start to the fourth quarter. While output continues to
improve against a backdrop of lean inventories and steady demand, supply chain disruptions and capital investment cutbacks remain challenges for the industry.
“The acceleration in manufacturing output in October suggests that, after lagging the broader recovery over the past six months, the factory sector is now catching up some lost ground,” Michael Pearce, senior U.S. economist at Capital Economics Ltd., said in a note. “With inventory levels still lean, we expect production to continue rising over the coming months, even if the recovery in consumption falters.”
It’s unclear what manufacturers will face in the coming months, but a sudden decline in demand, possibly combined with government-imposed restrictions on their operations because of the virus, could severely dampen industrial output.
In October, industry operated at 72.8% of capacity, down from a reading of 77% of capacity a year ago.
Despite the top-line gain that was in line with expectations, economists saw the October report as tepid and said future gains will depend largely on how the U.S. handles another wave of infections, and whether it can deliver a sorely needed aid package for Americans and American business.
“We expect industrial activity to continue recovering its pandemic-induced losses, but growth will be slower compared to the summer months,” said Oren Klachkin, an economist with Oxford Economics. “A rapidly deteriorating health situation poses significant downside risks to industrial activity, particularly if more fiscal aid isn’t delivered.”
Any hope for Congress to pass another aid package fizzled weeks ago in the lead-up to the U.S. election and seems even more unlikely to happen before Joe Biden takes office in January as President Donald Trump refuses to concede the election.
The virus has killed more than 247,000 Americans this year and infected at least 11.1 million — about 1 million in the past week alone.
Utilities’ output rose 3.9%, but output at mines fell 0.6% and is now 14.4% below where it was this time last year.
September’s number was revised upward from -0.6% to -0.4%. It remains the only decline since April’s 12.7% drop.
Despite the improvement last month, the Fed’s index of manufacturing remains about 5% below its level in February.
The Fed report follows several other measures that have pointed to steady improvement in the manufacturing sector. The Institute for Supply Management’s manufacturing gauge rose to the highest since 2018 last month, as a measure of new orders surged to a 16-year high.