Economic Insights: Industrial Production Takes a Breather in July, But Strength Remains

By at 15 August, 2018, 2:05 pm

Small Business Insider


by Raymond J. Keating-

On August 15, the Federal Reserve served up its latest measure of industrial production, i.e., the output of the nation’s industrial sectors, i.e., manufacturing, mining and utilities.

Specifically, industrial production edged up by 0.1 percent in July. Over the previous five months, however, growth averaged 0.5 percent. And compared to a year earlier, industrial production was up by a robust 4.2 percent. Keep in mind that in terms of the annual data, the last time the U.S. experienced industrial production growth topping 4 percent in a non-recession year was 1999 when it registered 4.4 percent (industrial production grew by 5.5 percent in 2010 but that was after declines of 11.5 percent in 2009 and 3.5 percent in 2008)

In terms of the three major industry groups in July, mining and utility output actually declined (-0.3 percent and -0.5 percent, respectively), while manufacturing output grew by 0.3 percent. Over the last six months, manufacturing output grew at an average rate of nearly 0.4 percent.

Compared to a year earlier, manufacturing output was up by 2.8 percent, with mining up by 12.9 percent and utilities by 2.3 percent.

On the manufacturing front, output growth had been woeful for five years running – from 2013 to 2017 – and again if you factor in the growth of the 2010 to 2012 merely being a period of clawing back some of the staggering declines of 2008 and 2009, manufacturing production has badly under-performed for a decade now. Amazingly, and unfortunately, U.S. manufacturing production in July 2018 still remained below the levels registered form February 2007 to April 2008. That’s deeply troubling, but the hope is that manufacturing is getting back on track.

Manufacturing Growth Solid

Thankfully, the growth in manufacturing output over the last three quarters (5.3 percent in the fourth quarter 2017, 1.9 percent in the first quarter 2018, and 2.9 percent in the second quarter of this year) has been solid, and the best three-quarter performance since late 2011 into early 2012.

By the way, it’s important to keep in mind that manufacturing in the United States is overwhelmingly about small business. According to the Census Bureau’s latest data, among U.S. manufacturing employer firms, 74.6 percent have less than 20 employees, 93.5 percent less than 100 workers, and 98.5 percent less than 550 employees.

Growth in output from U.S. industrial sectors clearly has benefited from the shift in policy providing tax and regulatory relief for entrepreneurs and businesses. At this point when it comes to public policy, the major threat to industrial sector growth clearly comes on the trade front, such as imposing and threatening to inflict tariffs, and the inevitable backlash from our trading partners. If President Trump would drop these short-sighted measures that only serve to create uncertainty and undermine economic growth, the foundation for U.S. industrial growth would only be strengthened further.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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