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US industrial production unexpectedly declines in August

H.S. Borji
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US industrial production unexpectedly declines in August

US industrial production declined unexpectedly in August, as manufacturing output fell for the first time since January and capacity utilization pointed to more spare resources in the industrial sector.

Total industrial production declined 0.1 percent in August, following a downwardly revised gain of 0.2 percent the previous month, the Board of Governors of the Federal Reserve System reported today in Washington. Economists forecast industrial production to rise 0.3 percent in August.

August snapped six consecutive months of industrial production growth, official data showed. Compared to August 2013, industrial production advanced 4.1 percent.

Manufacturing production, which represents approximately 12 percent of the US economy and three-quarters of total production, declined 0.4 percent in August, following a downwardly revised gain of 0.7 percent the previous month that marked the fastest advance since March.

Compared to August 2013, manufacturing output was up 3.6 percent.

Earlier this month the Institute for Supply Management said US manufacturing accelerated in August at the fastest pace in more than three years, led by higher new orders and overall production levels.

ISM’s national gauge of manufacturing activity climbed 1.9 percentage points to 59.1, the highest reading since March 2011. The gauge has been above the 50 mark that separates expansion from contraction for fifteen consecutive months.

In total, 17 of the 18 manufacturing sub-sectors reported growth last month, ISM data showed. This in turn led to another solid month of job creation.

Output in the mining sector, which includes oil drilling, advanced 0.5 percent in August, following a revised drop of 0.3 percent in July. Compared to the previous 12 months, mining was up 8.7 percent.

Utilities output rose 1 percent, following a revised drop of 2.7 percent the previous month. Year-on-year, utilities output was unchanged, official data showed.

Among the major market groups, the production of consumer goods declined 0.8 percent. Year-on-year, consumer goods production increased 2.8 percent.

The production of business equipment was flat in August, which translated into an annualized gain of 5.7 percent.

Nonindustrial supplies rose 0.4 percent in August, which translates into an annual gain of 3.2 percent.

Materials output edged up 0.1 percent, which translated into an annualized gain of 4.9 percent.

Industrial capacity utilization, which gauges how fully US companies are using their factory resources, declined to 78.8 percent from 79.1 percent. Economists forecast a slight increase to 79.3 percent. Capacity utilization was 1 percentage point above year-ago levels, but was 1.3 percentage points below its long-run (1972-2013) average.

Today’s figures point to a broad slowdown in factory activity in August, which could weigh on overall growth in the third quarter. However, they are unlikely to detract from the view that overall conditions were improving.

Economists forecast the economy will expand more than 3 percent annually in the July-September period, after rebounding sharply in the second quarter. US gross domestic product grew at an annualized rate of 4.2 percent in the second quarter, more than offsetting the weather-induced slump at the beginning of the year.

The Commerce Department will post another revised estimate of second quarter growth on September 26.

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