Following several consecutive months of promising growth, manufacturing production began to slow in October, signaling a recovery in the industrial sector that will likely be slower and more fragile than many expected.
Despite lagging employment numbers
, the nation's industrial sector has been moving in the right direction since mid-year, as evidenced by rising output, profitability, growth in new orders and improved productivity. However, new reports indicate that the recovery lost some of its momentum in October, raising concerns over the strength of the industrial upswing.
After averaging 0.9 percent growth each month for the previous three months, industrial production in the United States slowed to 0.1 percent growth in October, according to the U.S. Federal Reserve
this week. As reported by the Fed, total industrial production last month was down 7.1 percent from its year-ago level, and while capacity utilization rose by 0.2 percent to reach 70.7 percent in October, the rate was still 10.2 percent below the average for 1972 through 2008.
The Fed report also found that manufacturing output declined by 0.1 percent in October after making promising gains of 0.8 percent in September, 1.4 percent in August and 1.2 percent in July, which marked the end of the last cycle of decline. The October factory operating rate remained at 67.6 percent, unchanged from the previous month.
The Fed's index for durable consumer goods last month fell by 1.4 percent, including a 2 percent drop in output for automotive products, while non-durable goods gained 0.3 percent in October. Mining output declined by 0.2 percent, also following three consecutive months of growth, but utilities output rose by 1.6 percent.
"This squares with other data in suggesting that the early quarters of the economic and manufacturing recovery will be constrained by issues related to the sources of demand," Cliff Waldman
, an economist for the Manufacturers Alliance/MAPI, said in an analysis of the Fed's report
. "Since June, manufacturing output gains have been catalyzed by the normal inventory cycle, in which a leveling of the rapid depletion of stocks requires positive output adjustments, and by a range of fiscal policy programs which provide only a temporary stimulus."
Although production for the industrial sector as a whole grew last month, the growth was partly due to increased output from utilities offsetting the first decline in factory production since June. The 2 percent drop in automotive production was motivated by tapering demand following the end of the "cash for clunkers" program
in August, Agence France-Presse
Manufacturing output is scaling back across a wide range of markets, with many key product categories under pressure as economic stimulus effects begin to wear off. "Production cutbacks were logged last month not only for cars, but also for appliances, furniture and carpeting, clothing, computer and electronic products, paper products, petroleum and coal products, fabricated metal products and other things," according to the Associated Press
Incentives for vehicle purchasing boosted the durable goods product group, which includes home appliances and furniture, but as of October, the market for these items has declined by 15.53 percent over the previous year and is currently at its lowest level in nearly 30 years, economics blog Seeking Alpha
In its newly released Quarterly Economic Forecast
, the Manufacturers Alliance/MAPI says manufacturing production is expected to decline by 11.3 percent through 2009. Despite this downturn, manufacturing output is predicted to rebound next year, growing by 4.6 percent in 2010 faster than the general U.S. economy, which is forecast to expand at 2.4 percent. Much of the new growth is expected to be driven by inventory adjustments, high-tech products, semiconductors and computers.
"We are pleased there is growth in the overall economy, and surprisingly strong growth in manufacturing," Daniel J. Meckstroth
, chief economist for the Manufacturers Alliance/MAPI, said in the latest quarterly report. "Yet, by historical standards it is still modest compared to recoveries from past recessions."
The report also forecasts industrial equipment expenditures to decline by 22.7 percent for the year, with spending to recover and post a 3.5 percent gain in 2010 and an additional 22.6 percent in 2011.
"There's no reason to panic," Paul Ashworth, senior economist at macroeconomic research firm Capital Economics
, told the Washington Post
. "But it is a timely reminder that it's not going to be a strong recovery, even in the industrial sector. It is a bit worrying to see that softness so early in the recovery."
Employment Conditions Lag Behind Economic Recovery
"Cash for Clunkers" Closes Out
Industrial Production and Capacity Utilization
U.S. Federal Reserve, Nov. 17, 2009
MAPI Analysis on Industrial Production Report: 'Sluggish' Manufacturing Output
The Manufacturers Alliance/MAPI, Nov. 17, 2009
U.S. Industrial Production Mixed Following Strong Gains
Agence France-Presse, Nov. 17, 2009
Industrial Output Rises Less than Expected in Oct.
by Jeannine Aversa
The Associated Press, Nov. 18, 2009
Production Pullback: Industrial Production for October 2009
Seeking Alpha, Nov. 17, 2009
MAPI Quarterly Economic Forecast: Mild, Sluggish Recovery
Manufacturers Alliance/MAPI, Nov. 18, 2009
Signs Point to a Lukewarm Recovery
by Neil Irwin
The Washington Post, Nov. 18, 2009