Daily Management Review

Resurgence In The Auto Industry Helped Boost US Industrial Output In March


Resurgence In The Auto Industry Helped Boost US Industrial Output In March
The third consecutive monthly increase in U.S. factory activity was fueled by a dramatic comeback in automobile output in March, possibly hinting that the worst of the production troubles that have plagued the auto industry over the last year are passed.
The Federal Reserve reported on Friday that overall industrial production grew 0.9 per cent in March, matching February's upwardly revised rate. Factory output was expected to increase by 0.4 per cent, according to economists polled by Reuters. In comparison to the previous year, output increased by 5.5 per cent.
During the COVID-19 epidemic, spending shifted from services to products, benefiting manufacturing, which accounts for 11.9 per cent of the American GDP. However, manufacturers have struggled to meet high demand as labour markets have tightened and supply bottlenecks have continued as a result of COVID lockdowns in China and the war in Ukraine.
The automobile industry has been particularly badly hit by supply concerns, with production slowed for more than a year by a global scarcity of electronic components, particularly the computer chips required for today's increasingly complicated vehicle operating systems.
However, following a downwardly revised decline of 4.6 per cent in February, motor vehicle and parts output in the United States increased by 7.8 per cent last month, which is the highest increase since October last year. At a seasonally adjusted annual pace, total assembly of automobiles and light trucks increased to nearly 9.5 million vehicles, the highest since January 2021, up from 8.3 million the month before.
"The auto industry is making a comeback," Bill Adams, chief economist for Comerica Bank, said in a note. "Production plunged in 2021 as the chip shortage idled factories. Now that is reversing as carmakers work through the challenge and find ways to stretch their chip supplies."
According to Adams, the improvement in production should help boost auto sales, which have been hampered by supply constraints. "Vehicle sales have higher prospects this year than other categories of durable consumer goods," says the report, even as consumer spending turns back to services in the months ahead as COVID caseloads reduce.
"Since sales last year were held back so much by the chip shortage, vehicle sales are constrained much more by supply than demand, and so will grow solidly in 2022 and 2023 despite higher (interest) rates on car loans and less support from fiscal stimulus," he said.
Overall industrial sector capacity utilisation increased to 78.3 per cent last month, the highest level in more than three years, from 77.7 per cent the month before. It is 1.2 percentage points lower than the average from 1972 to 2021.
Manufacturing capacity utilisation increased to 78.7 per cent in March, the highest level since 2007, up from 78.1 per cent in February.
Capacity utilisation indicators are often used by Fed officials to determine how much "slack" remains in the economy, or how far expansion can go before it becomes inflationary.
A separate data released on Friday by the New York Federal Reserve revealed that manufacturing activity in New York state accelerated in April, despite rising inflationary pressures.
After a score of negative 11.8 in March, the Empire State Manufacturing Index jumped to a four-month high of 24.6. The survey's prices paid index increased to 86.4 from 73.8 previous month, a new high.
However, optimism in the future has diminished, with the six-month outlook score slipping to 15.2 from 36.6 in March, the lowest level in nearly two years.