The Bleeding Stopped for Manufacturing in May

By at 17 June, 2020, 1:56 pm

by Raymond J. Keating-

The latest report on industrial production from the Federal Reserve indicates that the bleeding at least stopped in May in terms of manufacturing production.

Total industrial production actually grew in May by 1.4 percent after plunging by 12.5 percent in April and by 4.6 percent in March, and not seeing a month of growth since November of last year.

Manufacturing, the largest component of industrial production, grew by 3.8 percent in May. That came after declines of 15.5 percent in April and 5.3 percent in March. The last month of growth was December of last year.

In May, mining output fell by 6.8 percent, after dropping by 6.1 percent in April, 1.9 percent in March, and 1.6 percent in February. Energy has suffered severely. The Fed reported: “After falling nearly 28 percent in April, the index for oil and gas well drilling declined almost 37 percent further in May and was more than 63 percent below its year-earlier level. In addition, the index for crude oil extraction has fallen about 5 percent in each of the past two months.”

Over the past year, from May 2019 to May 2020, total industrial production was down by 15.3 percent, with manufacturing off by 16.5 percent, mining down by 14.1 percent, and utilities off by 8 percent.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

When talking about the U.S. economy having a deep hole to dig out of, that’s particularly the case for the industrial sector, in particular manufacturing, as noted in the two charts above. The Great Recession and misguided policy responses took a heavy toll on manufacturing, and now the pandemic and related economic ills have dealt another brutal blow. It is important to note, again as illustrated above, U.S. manufacturing production hit a high in December 2007, and has never gotten back to that level – never mind experiencing growth. And now, manufacturing is even more distant from that December 2007 high.

Elected officials need to look for more opportunities to shift policymaking in a pro-growth direction – namely, deep and permanent tax and regulatory relief, reining in government spending, advancing free trade, and sound money – so that entrepreneurship, investment, innovation and growth can flourish. If not, the U.S. will long stare down the barrel of relative economic stagnation.

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


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