by Shobhana Chandra
U.S. factory production expanded in July for a second consecutive month, indicating a steady outlook at the start of the second half of 2018, Federal Reserve data showed Wednesday.
Key Takeaways
The report showed gains in manufacturing of durable goods, including machinery, vehicles, computers and electronics. Factory production was 2.8% higher than its level a year ago, indicating steady demand -- underpinned by lower corporate and consumer taxes and a strong job market -- will keep supporting factory activity.
The results also reflected a return to more typical levels of automobile production in July, after a fire-related disruption at an auto parts supplier depressed truck assemblies in May and later gave an outsized boost in June.
Excluding motor vehicles, manufacturing production rose 0.2% after a 0.3% increase the prior month.
It may be hard to sustain last quarter’s momentum as producers face rising costs for materials as a result of the trade war and supply constraints amid strong demand. It’s too early to tell whether tariffs on steel and aluminum are helping U.S. producers boost production of the metals, or whether the levies are limiting output for other manufacturers using those as inputs.
Second-quarter gains in investment and consumer spending fueled a 4.1% pace of economic growth, the fastest since 2014, though economists project it will moderate this quarter.
The factory-use rate of 75.9% is still 2.4 percentage points below its long-run average, the Fed said in the report.
The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up 75% of total industrial production, accounts for about 12% of the U.S. economy.