Output at manufacturing plants fell 0.4 per cent in August after a 0.7 per cent rise in July, the Federal Reserve reported Monday. Total industrial production was down 0.1 per cent in August, also the first setback for the overall figure since January. Output was up in mining and utility production but these gains were not enough to offset the decline in manufacturing.
Output of motor vehicles and parts dropped 7.6 per cent after a 9.3 per cent increase in July. The reversal was not viewed as worrisome. The July figure was boosted because many plants did not shut down as they normally do to retool for new models. That made August look weaker.
Economists had been looking for a weaker figure for factory output in August as auto activity returned to more normal levels. The fact that there were fewer plant shutdowns in July made output look stronger after the government adjusted the figure for normal seasonal variations. And that seasonal adjustment then made the August figures look weaker.
Outside of manufacturing, output at utilities rose 1 per cent after a big 2.7 per cent drop in July which reflected cooler-than-normal temperatures that month. Output in mining, a category that includes oil and gas production, rose 0.5 per cent in August after a 0.3 per cent drop in July.
Paul Dales, senior U.S. economist at Capital Economics, said he was not overly concerned by the dip in industrial production because it reflected a temporary seasonal adjustment problem. He said gains in a number of industries outside of autos "underlines that industry remains healthy."
A broad increase in manufacturing this year has pointed to stronger growth across the economy, suggesting that manufacturers expect business investment and consumer spending to improve in the coming months.
A separate report from the Institute for Supply Management showed that U.S. manufacturing rose on the ISM index to the highest level in more than three years. The ISM manufacturing gauge increased to 59, the highest point since March 2011. The index in July stood at 57.1. Any reading above 50 signals that manufacturing is growing.
Factories are benefiting from strong demand for aircraft, furniture and steel. The boost in manufacturing has helped to offset a slowdown in home building, but U.S. manufacturers face challenges in some of their major export markets. The European economy is performing sluggishly while slower growth in China has weighed on business activity in that country.
The U.S. economy grew at a 4.2 per cent annual rate in the April-June quarter, a significant rebound from a 2.1 per cent contraction in the first quarter that reflected in part a severe winter that disrupted a number of activities.
Economists expect that continued gains in employment will spur consumer spending and translate into annual growth of around 3 per cent in the second half of this year.