US manufacturing production hits 2.5-year high in October

The production in the factories of the USA recovered more than expected in October, with the impact of the hurricane Ida and the increase in vehicle production, but manufacturing remains limited by the scarcity of raw materials and labor.

Manufacturing output rose 1.2% last month to its highest level since March 2019, after falling 0.7% in September, reported the Federal Reserve this Tuesday (16). Economists polled by Reuters had predicted a 0.7% rise in manufacturing output.

Production increased 4.5% from October 2020. Manufacturing, which accounts for 12% of the US economy, is being supported by companies desperate to replenish their depleted inventories.

Even with spending going back to services as coronavirus infections, driven by Delta variant, decrease, demand for goods remains strong.

Production at automakers rebounded by 11.0% last month, after having retreated for two consecutive months. excluding automobiles, manufacturing production grew 0.6% in October.

The production of consumer goods recovered 1.4%. But machinery output dropped 1.3 percent because of an ongoing strike at the John Deere company. The jump in manufacturing output last month, combined with a 4.1% recovery in mining and a 1.2% increase in utilities, boosted industrial production by 1.6%. This after falling 1.3% in September.

Capacity utilization in the manufacturing sector – a measure of how much companies are using their resources – rose 0.9 percentage point in October to 76.7%, the highest level since January 2019.

The capacity utilization of the industrial sector increased from 75.2% in September to 76.4% in October, 3.2 percentage points below the average from 1972 to 2020.

Fed officials tend to look to capacity-use measures for signs of how much “slack” remains in the economy, ie, how far growth has room to occur before it becomes inflationary.