September was no easy month for America’s factories. They struggled with shortages of materials and qualified workers plus the aftermath of Hurricane Ida, which battered the US gulf coast at the end of August.
US industrial production fell 1.3% last month, according to data collected by the Federal Reserve, which was a disappointment as economists had predicted a modest increase. August production was also revised down. The industrial production index measures output from the manufacturing, mining and electric and gas utilities industries.
Similarly, the rate of capacity utilization — which measures the amount of industrial factory capacity that’s currently in use — was lower than expected at 75.2%. That’s the lowest level since April.
But even though the September data was worse than expected, it doesn’t mean America’s factories are stagnating, economists from Citi said. The hurricane impact will peter out and even though shortages continue to hamstring various parts of the economy, the recovery is coming along steadily.
Bad news for GDP?
Still, this is bad news for third-quarter economic activity because “industrial production growth is closely tracking GDP growth in 2021, and likely 2022,” said Action Economics’ chief economist Mike Englund.
The aftermath of Hurricane Ida also contributed to the drop in manufacturing and drove a decline in mining. Nearly half of the total drop in September industrial production was due to the hurricane’s impact, the Fed said.
Car manufacturing dropped sharply last month as the shortage of semiconductors that has already lasted for much of the pandemic recovery continues to weigh on the sector. New car production has been hampered, driving up prices for used vehicles and adding to inflationary pressures.
“Although strong demand has kept factory production elevated, manufacturers are struggling to keep up amid supply constraints,” said BMO Economist Priscilla Thiagamoorthy in a note to clients. “And, with the semiconductor shortage not expected to ease until next year, auto production will continue to weigh on the headline figure for some time.”