US manufacturing output accelerates in July

WASHINGTON, Aug 16 (Reuters) – Output at U.S. factories rose more than expected in July as output rose at motor vehicle plants and elsewhere, pointing to underlying strength in the manufacturing sector despite a drop in business confidence.

Manufacturing output rebounded 0.7% last month after falling 0.4% in June, the Federal Reserve said on Tuesday. Economists polled by Reuters had forecast factory output to rise 0.2%. Production increased by 3.2% compared to July 2021.

The manufacturing sector, which represents 11.9% of the US economy, remains supported by strong demand for goods, even as spending is gradually returning to services. But the risks are growing as retailers sit on excess inventory, particularly of clothing.

A strong dollar resulting from tighter monetary policy could make US exports more expensive. The US central bank has raised its key rate by 225 basis points since March. The aggressive tightening of monetary policy raised fears of a recession, which hurt the business climate.

Production at auto factories jumped 6.6% last month. Excluding motor vehicles, manufacturing rose 0.3%. The production of durable manufactured consumer goods increased by 3.5%, while that of non-durable consumer goods fell by 0.3%.

Mining output rose 0.7%, continuing to be supported by oil and gas extraction. Utilities output fell 0.8%. Rising manufacturing and mining output helped push overall industrial production up 0.6%. Industrial production remained unchanged in June.

Manufacturing capacity utilization, a measure of the full utilization of resources by businesses, rose half a percentage point to 79.8% in July. It is 1.6 percentage points above its long-term average. Overall capacity utilization in the industrial sector rose to 80.3% last month from 79.9% in June. It is 0.7 percentage points higher than its 1972-2021 average.

Fed officials tend to look at capacity utilization measures to find out how much “slack” remains in the economy – how far can growth go before it becomes inflationary.

Reporting by Lucia Mutikani; Editing by Paul Simao

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