U.S. factory production rebounds at fastest pace in four months

By Martin Crutsinger

WASHINGTON (AP) – U.S. factory production in July posted the strongest gain in four months, reflecting a surge in production at auto plants that are still wrestling with major supply chain problems.

Manufacturing output increased 1.4 per cent last month following a decline of 0.3 per cent in June, the Federal Reserve reported Tuesday. It was the best showing since a 3.4 per cent gain in March.

Overall, industrial production – which includes manufacturing, utilities and mining – posted a 0.9 per cent increase, the best performance since a 2.8 per cent surge in March.

The mining sector, which includes oil and gas production, rose 1.2 per cent as producers continued to ramp up production in response to rising prices for crude oil. Output in the utility sector fell 2.1 per cent in July, as near record-high temperatures in the West were offset by cooler temperatures in other parts of the country.

About half of the 1.4 per cent gain in manufacturing output came from a 11.2 per cent rise in the productions of motor vehicles and parts, reflecting the fact that many auto plants trimmed or canceled their typical shutdowns in July for retooling.

The Fed reported that auto production continues to be constrained by a persistent shortage of computer chips.

While the gain in factory output in July was double what had been expected, many economists said that output in coming months will likely moderate given the on-going problems with supply chains and labor shortages.

“With many sectors still suffering from severe shortages of raw materials and workers, we suspect growth will slow again over the coming months,” said Andrew Hunger, senior U.S. economist at Capital Economics.

With the 0.9 per cent gain in July, overall industrial production is now 6.6 per cent above its July 2020 level but still 0.2 per cent below its February 2020 pre-pandemic peak. However, the manufacturing sector is now 0.8 per cent above its pre-pandemic peak.

Industries operated at 76.1 per cent of capacity in July, up from 75.4 per cent of capacity in June.

In addition to the strong gain in auto and parts production, machinery output was up 1.9 per cent in July, computers and electronics showed a 1.1 per cent gain and aircraft production rose 1.9 per cent.