U.S. factory output rose in November, lifted by a rebound in motor vehicle production after the end of strikes, but activity was weaker elsewhere as manufacturing grappled with higher borrowing costs and softening demand.
Despite the mixed fortunes of the manufacturing sector, the economy continued to expand at the end of the year. A survey on Friday showed that business activity rose in December on rising orders and demand for workers in the services sector.
“The broader economy is still growing, but industrial production has peaked in September 2022,” said Christopher Rupkey, the chief economist at FWDBONDS in New York.
Manufacturing output rose by 0.3% in November, the Federal Reserve said. Data for October was revised lower to show factory output fell 0.8% instead of the 0.7% previously reported. The Economists polled by Reuters had forecast factory output rising 0.4%.
Excluding motor vehicles and parts, production fell by 0.2%. Total factory production decreased by 0.8% year-on-year in November.
Manufacturing, which accounts for 10.2% of the economy, continues to be hampered by higher interest rates. Despite easing financial conditions and the prospect of a rate cut next year, factory output is not expected to improve quickly amid signs that businesses are cutting back on stockpiles in anticipation of softer demand.
An Institute for Supply Management survey this month found that manufacturers viewed customer inventories in November as rising “toward the upper end of ‘about right'” territory. The ISM manufacturing PMI has remained in decline for 13 straight months, the longest such stretch since August 2000 to January 2002.
The Fed kept interest rates steady on Wednesday and signaled in new economic projections that the historic tightening of monetary policy built up over the past two years is over and lower borrowing costs can be seen in 2024.
A lackluster outlook for the manufacturing industry was bolstered on Friday by a survey from the New York Empire State Fed that showed factory activity in the region slipping deeper into recession. The general business conditions survey fell 24 points to -14.5 this month, with new orders and employment measures stuck in the negative.
Manufacturers in the region were not so much optimistic that business conditions would improve over the next six months.
Wall Street stocks were mixed. Unfortunately, the dollar rose against a basket of currencies. US Treasury bond prices were unchanged.
BUSINESS ACTIVITY OF THE MACHINE
A third report from S&P Global showed its flash manufacturing PMI fell to 48.2 in December as orders fell from 49.4 in November. However, the survey’s flash services sector PMI rose to 51.3 from 50.8, with all sub-components of new orders, employment, and input prices rising.
That lifted S&P Global’s flash Composite PMI Output Index, the index that tracks the manufacturing and services sectors, to a five-month high of 51.0 from 50.7 in November.
However, sentiment surveys such as the ISM and Empire State likely exaggerate the weakness in manufacturing. The Fed’s report showed pockets of strength.
Motor vehicle and parts production rebounded 7.1% last month, offsetting most of October’s 9.9% decline after the United Auto Workers’ 1-1/2-month-long strike against Detroit’s “Big Three” automakers ended. Motor vehicle production was expected to pick up once plants returned to full capacity.
“Automotive suppliers that were negatively affected by the last strike and had to lay off workers need time to get operations back to pre-strike levels,” said Bernard Yaros, head of the US. economist at Oxford Economics. “We should see rapid gains in motor vehicle and parts manufacturing soon.”
There were solid increases in the production of computer and electronic products and aerospace and miscellaneous transportation equipment, which, along with the production of motor vehicles and parts, contributed to a 1.2% increase in durable manufacturing.
Production of high-tech goods such as computers, communications equipment semiconductors, and related components has surged this year, driven by the Biden administration’s push to bring manufacturing back to the United States. The production of non-durable goods fell by 0.5% as the production of textiles, clothing, and leather fell sharply.
- Mining rose 0.3% after falling 1.1% in October. Utilities output fell 0.4% after falling 1.4%. Total industrial production rose 0.2% in November after falling 0.9% in October.
- Capacity utilization for the industrial sector, a measure of how well firms are making full use of their resources, rose slightly by one-tenth of a percentage point to 78.8% in November.
- The operating rate for the manufacturing sector rose to 77.2% from 77.0% in the previous month (November 2023).
“Some stabilization in demand at lower levels, easing interest rates as the Fed rates cut is expected next year, as well as onshoring of supply networks and improving infrastructure spending, may support factory activity in 2024,” said Rubeela Farooqi, chief US economist at High Frequency. Economics in White Plains.
Source: Reuters
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