ECONOMIC DATA: Manufacturing Growth in June. Will It Continue?

By at 16 July, 2019, 2:46 pm

by Raymond J. Keating-

Industrial production (i.e., the real output of the manufacturing, mining, and electric and gas utilities) saw no growth in June, according to the latest report from the Federal Reserve. However, manufacturing output, which makes up the biggest chunk of industrial production, grew for the second consecutive month.

The main negative was in utility output, as the Fed reported: “The output of utilities fell 3.6 percent as milder-than-usual temperatures in June reduced the demand for air conditioning.”

The manufacturing data warrants attention. Manufacturing production has been troubled so far this year. Output experienced big declines in January, February and April, with March being flat. Growth resumed in May (+0.2 percent) and continued in June (+0.4 percent).

Two months of growth certainly are welcome, but things remain precarious. Manufacturing production in June 2019 stood at the exact same level where it was in July 2018. That means no growth over the past near-year. From December of 2018 to June 2019, manufacturing output was actually down by 1.1 percent.

Finally, it must be pointed out that manufacturing output still has not recovered from the high hit just before the start of the last recession. So, manufacturing output remains lower in June 2019 compared to its December 2007 level (see chart).

Source: Federal Reserve Bank of St. Louis, FRED

The weak performance in manufacturing during the last decade or so is not due to trade or bad trade deals, as some would argue. In fact, reducing trade barriers during the post-World-War-II era had been good news for American businesses and workers, including manufacturers, as lower governmental barriers to trade have meant expanded markets for U.S. goods, as well as greater choices and lower costs for inputs.

Indeed, the most recent challenges for U.S. manufacturers come from uncertainty over the direction of trade and the imposition of tariffs by the Trump Administration. The threat of additional tariffs is ongoing, as are the responses by our trading partners.

The best way, at this point in time, to boost American manufacturing – which is overwhelmingly about small businesses (for example, with 74.7 percent of manufacturing employer firms having fewer than 20 employees) – is to advance a true free trade agenda, which will reduce governmental costs and barriers so individuals and businesses can more easily conduct commerce with each other across borders.

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


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