Report on Industrial Production Raises Questions on the Direction of Economy and Biden Policies

By at 18 October, 2021, 2:53 pm


by Raymond J. Keating –

The Federal Reserve’s latest report on industrial production raises some serious questions about the economy.

The Fed reported that industrial production – which is the actual output of the manufacturing, mining and utility sectors of our economy – declined by 1.3 percent in September. For good measure, output for August was downgraded from a gain of 0.4 percent to a decline of 0.1 percent.

Manufacturing output, which makes up the biggest chunk of industrial production, declined by 0.7 percent in September, after a drop of 0.4 percent in August.

For good measure, mining suffered two consecutive months of declines as well, falling by 2.3 percent in September after an August decline of 0.9 percent.

The Fed explained:

“The production of motor vehicles and parts fell 7.2 percent, as shortages of semiconductors continued to hobble operations, while factory output elsewhere declined 0.3 percent… The lingering effects of Hurricane Ida more than accounted for the drop in mining in September; they also contributed 0.3 percentage point to the drop in manufacturing. Overall, about 0.6 percentage point of the drop in total industrial production resulted from the impact of the hurricane.”

The hurricane obviously is a temporary effect. But even after accounting for that, industrial production, including manufacturing, still suffered noteworthy declines in September.

Source: Federal Reserve Bank of St. Louis, FRED

As noted in the above chart, manufacturing production in the U.S. has suffered since the Great Recession (late 2007 to mid-2009). Not only was manufacturing output in September 2021 not back to the pre-pandemic level, but it still remained short of the high hit before the Great Recession.

In fact, manufacturing production in September 2021 stood at the same level as registered in September 2005, that is, no growth for 16 years.

That is a distressingly long period of stagnation and lost growth. Meanwhile, our elected officials seem oblivious as they talk about increased tax and regulatory burdens on the industrial sector.

At a time when U.S. manufacturing, which is overwhelmingly about small businesses (with 93.3 percent of employer manufacturing firms having fewer than 100 employees), struggles, the policy focus should be on reducing governmental costs and barriers to entrepreneurship, investment and innovation in manufacturing; yet, the exact opposite has been happening.

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


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