This month’s Federal Reserve data indicate the days of optimism may be over for now.

By Alan Tonelson

The new Federal Reserve industrial production figures indicate that all the headwinds it’s faced recently are finally proving too much for U.S. domestic manufacturing – at least for the time being. Moreover, revisions show that they – started taking a significant toll earlier than previously reported.

There’s still a case for optimism, as the numbers showed that damage inflicted by Hurricane Ida to the petrochemicals, plastics resins, and petroleum refining sectors originally revealed in the previous industrial production release (covering August) continued depressing the overall September figures (which came out this morning). Presumably, those effects have already begun to wear off.

The main argument for pessimism? The supply chain snarls that have been hamstringing manufacturers – especially in the automotive industry – seem certain to persist for many more months.

At the 30,000-foot level, U.S.-based manufacturing’s recent struggles can be seen by the 0.76 percent monthly drop suffered by its real output in September, and the new 0.40 percent decline now estimated for August – a significant downward revision from the previous 0.11 percent growth number. Moreover, such back-to-back after-inflation sequential production decreases are the first since the brief but savage recession triggered by the CCP Virus’ arrival in force in the United States in the spring of 2020.

Behind both these last two contractions have been Ida and supply chain woes.

Specifically, in August, the automotive sector was originally judged to have grown fractionally over July levels. Now this fall-off is pegged at 3.19 percent. And in September, constant dollar production tumbled another 7.17 percent – the worst sequential result since April’s 7.23 percent.

As for the most Ida-affected industries, the revisions left their dreary August performances intact overall, but real monthly output shrinkage accelerated in September for the petrochemicals-related organic chemicals sector (from 2.98 percent to 6.63 percent). It moderated somewhat in the resins and synthetic rubber segment (from 3.08 percent to 2.54 percent). And it turned from growth to contraction in petroleum refineries (from a 1.03 percent gain to a 2.64 percent drop).

Domestic manufacturing’s biggest September monthly growth winners among the broadest industry categories tracked by the Fed? The champ hands down was printing and related support activities, which expanded by 2.69 percent in price-adjusted terms. Next came textiles at 1.72 percent (although its fractional August decrease was revised way down to 1.68 percent); followed by electrical equipment, appliances and components (up 1.34 percent, though its August decline was also downgraded, from 1.16 percent to 1.56 percent, and its previously upgraded 3.95 percent July surge was knocked way down to 1.13 percent); miscellaneous durable goods, which contains many key healthcare related products (up 1.29 percent); and fabricated metal products (up 1.22 percent).

Another important winner – the machinery sector, whose products are used throughout the rest of manufacturing and in big non-manufacturing industries like construction and agriculture. Its August monthly contraction was revised down from 0.80 percent to 1.01 percent, but in September it eaked out a 0.18 percent gain. And its big July jump stayed above three percent.

The biggest losers, aside from the aforementioned automotive and hurricane-affected industries? Non-metallic mineral products (down 0.87 percent on month); wood products (off by 0.61 percent); and the very big food products sector (a 0.56 percent slide).

Manufacturing industries that have been prominent in the news turned in overall fair performances in September. Aerospace giant Boeing’s manufacturing troubles continue, but inflation-adjusted aircraft and parts production climbed by 1.83 percent on month and revisions to these sectors’ strong recent results were generally even stronger. As a result, real output in this complex is now 16.33 percent above the levels it hit in February, 2020 – the last full data month before the pandemic struck.

After-inflation production slipped on month in phamaceuticals and medicines by 0.74 percent, but this decrease might be a breather following their August growth – which was revised all the way up from 0.89 percent to 2.75 percent. Thanks to this big upgrade, the sector is now 14.14 percent bigger now than in February, 2020.

The crucial medical equipment and supplies sector – which includes virus-fighting items like face masks, protective gowns, and ventilators – generated almost precisely the opposite results. Price-adjusted production increased sequentially by 1.53 percent in September, but August’s initially reported 1.73 percent real output decline is now estimated to have been a 2.22 percent fall-off. Consequently, real output of these products has grown by just 5.54 percent during the CCP Virus period.

Manufacturing bulls can point to future growth catalysts – like Congressional passage of a “hard” infrastructure bill, an end to the CCP Virus as a public health emergency (however anyone wants to define that goal), and a resulting new boost to American and global growth. But these catalysts seem unlikely to arrive quickly, meaning that further growth struggles could mark at least the short-term future for domestic manufacturing.

alan tonelson realitychek
Alan Tonelson

ALAN TONELSON
Alan Tonelson, a columnist for IndustryToday, is founder of the
RealityChek blog (alantonelson.wordpress.com), which covers manufacturing, trade, the economy, and national security. He has written for many leading publications on these subjects and is the author of The Race to the Bottom (Westview Press, 2000).