Daily Management Review

November Saw A Rise In US Industrial Output, With A Underlying Mild Trend


November Saw A Rise In US Industrial Output, With A Underlying Mild Trend
November saw an increase in production at American factories thanks to a spike in auto production after the strikes ended, but activity was lower abroad as manufacturers struggled with rising borrowing costs and declining demand.
Even with the varied results for the manufacturing sector, the economy was still growing at the end of the year. According to a survey released on Friday, company activity increased in December as a result of an increase in orders and a need for labour in the services sector.
"The broader economy keeps growing, but industrial production peaked way back in September 2022," said Christopher Rupkey, chief economist at FWDBONDS in New York. "Manufacturing continues to limp along and is unlikely to provide the fuel for economic growth in the near term."
The Federal Reserve reported that November's manufacturing output increased by 0.3%. Factory output fell by 0.8% in October, as opposed to the previously reported 0.7%, according to revised data. Factory output was expected to increase by 0.4%, according to economists surveyed by Reuters.
When autos and parts were excluded, manufacturing output decreased by 0.2%. In November, factory production fell by 0.8% overall compared to the same month last year.
The manufacturing sector, which makes up 10.2% of the GDP, is nonetheless constrained by rising interest rates. A quick recovery in manufacturing output is not anticipated despite improving financial conditions and the possibility of rate cuts in the upcoming year, as there are indications that companies are cutting back on inventory buildup in expectation of weaker demand.
According to a poll conducted this month by the Institute for Supply Management, producers believed that customer inventories had expanded in November "towards the upper end of 'about-right' territory". For 13 straight months, the ISM's manufacturing PMI has been in contraction zone. This is the longest such run since the August 2000–January 2002 period.
In addition to keeping interest rates unchanged on Wednesday, the Fed hinted in fresh economic forecasts that the historic monetary policy tightening that has been underway for the past two years is coming to an end and that lower borrowing costs will be returning in 2024.
The New York Fed's Empire State survey, which showed factory activity in the region deepening into recession, furthered the negative prognosis for manufacturing on Friday.
This month, the general business conditions index fell 24 points to -14.5, with employment measures and new orders remaining in negative territory.
There was a lack of excessive optimism among manufacturers in the area on the improvement of business circumstances in the upcoming half-year.
Wall Street's stocks were neutral. In relation to a currency basket, the dollar increased. Prices for US Treasuries remained constant.
According to a third survey, S&P Global's flash manufacturing PMI decreased to 48.2 in December due to a decline in orders from 49.4 in November. However, the survey's flash services sector PMI increased to 51.3 from 50.8, with increases in input costs, employment, and new orders as sub-components.
As a result, the manufacturing and services sectors are tracked by the S&P Global flash Composite PMI Output Index, which increased from 50.7 in November to a five-month high of 51.0.
However, sentiment polls like the Empire State and ISM probably exaggerate how poor manufacturing is. There were areas of strength in the Fed report.
Following the end of the United Auto Workers' one and a half-month-long strikes against Detroit's "Big Three" manufacturers, the output of motor vehicles and parts increased by 7.1% last month, recovering the majority of the 9.9% decline in October. As plants reopened to full capacity, it was anticipated that the output of motor vehicles would increase.
"Auto suppliers, who were negatively impacted by the latest strike and had to lay off workers, are requiring time to return operations to pre-strike levels," said Bernard Yaros, a lead U.S. economist at Oxford Economics. "We should see further gains in motor vehicle and parts output in the near term."
Along with the output of motor vehicles and parts, there were notable gains in the production of computer and electronic products, aerospace equipment, and various transportation-related items, all of which contributed to a 1.2% growth in durable manufacturing.
The Biden administration's efforts to return production to the United States have resulted in a sharp increase in the output of high-tech items this year, including computers, communications equipment, semiconductors, and associated components. Amidst sharp declines in the production of clothing, leather goods, and textiles, the nondurable goods sector saw a 0.5% decline in production.
After declining 1.1% in October, mining output increased by 0.3%. Production of utilities decreased by 0.4% after falling by 1.4%. After declining by 0.9% in October, overall industrial production increased by 0.2% in November.
The industrial sector's capacity utilisation, which gauges how efficiently businesses are utilising their resources, increased by 0.1 percentage points to 78.8% in November.
The manufacturing sector's operating rate increased from 77.0% to 77.2% in the previous month.
"Some stabilization in demand at lower levels, easing interest rates as the Fed cuts rates next year, as well as onshoring of supply networks and infrastructure spending may be supportive of factory activity in 2024," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.