WASHINGTON (Reuters) – Production at US factories unexpectedly rebounded in July as motor vehicle production surged, but activity is still hampered by higher borrowing costs.
Industrial production rose 0.5% last month, the Federal Reserve said Wednesday. Data for June was revised downwards to show factory production was down 0.5% from 0.3% previously reported. Economists polled by Reuters had predicted that factory output would remain unchanged.
Production fell 0.7% year-on-year in July. Since March 2022, the Federal Reserve has raised its overnight interest rate by 525 basis points to the current range of 5.25%-5.50%. That has put pressure on manufacturing, which accounts for 11.1% of the economy.
However, there are tentative signs that production could stabilize. While the Institute for Supply Management’s measure of national factory activity contracted for a 7th consecutive month in July, the pace slowed, with the ISM noting that “customer inventory levels are at the right tension…a potential slight positive for future production. “
The demand for goods also remains stable.
Production of motor vehicles and parts accelerated 5.2% last month after falling 3.9% in June. The jump likely reflected difficulties in adjusting the data for seasonal fluctuations.
Production usually falls in July, when automakers shut down their factories for refurbishment. However, the temporary factory closures don’t always happen, which could distort the model the Fed uses to remove seasonal fluctuations from the data.
Outside of motor vehicles, sustainable manufacturing recorded an increase in output of both machinery and computer and electronic products. But production of electrical appliances, devices and components declined, as did that of primary metals, furniture and related products.
In non-sustainable manufacturing, there were modest declines in production of paper, plastic and rubber products, as well as clothing and leather.
Mining production rose 0.5% after falling 0.9% in June. Utilities output rose 5.4%, recovering from three consecutive monthly declines as the heatwave boosted demand for air conditioning in much of the country.
Total industrial production shot up 1.0% in July, after falling 0.8% in June.
The capacity utilization rate for the industrial sector, a measure of how fully companies use their resources, rose from 78.6% in June to 79.3% in July. It is 0.4 percentage points below the 1972–2022 average. The manufacturing operating rate rose to 77.8% from 77.5% in June last month and is 0.4 percentage points below the long-term average.
(Reporting by Lucia Mutikani; editing by Chizu Nomiyama)