U.S. Manufacturing Production Rose for Second Month in July

(Bloomberg) -- U.S. factory production expanded in July for a second consecutive month, indicating a steady outlook at the start of the second half of 2018, Federal Reserve data showed Wednesday.

Key Takeaways

The report showed gains in manufacturing of durable goods, including machinery, vehicles, computers and electronics. Factory production was 2.8 percent higher than its level a year ago, indicating steady demand -- underpinned by lower corporate and consumer taxes and a strong job market -- will keep supporting factory activity.

The results also reflected a return to more typical levels of automobile production in July, after a fire-related disruption at an auto parts supplier depressed truck assemblies in May and later gave an outsized boost in June.

Excluding motor vehicles, manufacturing production rose 0.2 percent after a 0.3 percent increase the prior month.

It may be hard to sustain last quarter’s momentum as producers face rising costs for materials as a result of the trade war and supply constraints amid strong demand. It’s too early to tell whether tariffs on steel and aluminum are helping U.S. producers boost production of the metals, or whether the levies are limiting output for other manufacturers using those as inputs.

Second-quarter gains in investment and consumer spending fueled a 4.1 percent pace of economic growth, the fastest since 2014, though economists project it will moderate this quarter.

The factory-use rate of 75.9 percent is still 2.4 percentage points below its long-run average, the Fed said in the report.

The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up 75 percent of total industrial production, accounts for about 12 percent of the U.S. economy.

Other Details

• Utility output fell 0.5 percent, the third consecutive decline, following a 0.7 percent drop the prior month
• Production of motor vehicles increased 0.9 percent, following a gain of 7.6 percent in June and a decline of 8.5 percent in May; excluding autos and parts, total industrial output rose 0.1 percent in July
• Mining production decreased 0.3 percent, after five straight months of gains; oil and gas well drilling slipped 4.3 percent
• Production of consumer goods was unchanged, after a 0.9 percent gain, and output of business equipment rose 0.8 percent
• Construction output fell 0.1 percent after declining 0.3 percent

--With assistance from Jordan Yadoo.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Randy Woods

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