Industrial Production Up, But Manufacturing Only Inches Forward

By SBE Council at 15 September, 2023, 11:59 am

by Raymond J. Keating –

Industrial production – i.e., the physical output, free from price changes, of the manufacturing, mining and utility sectors – grew in August by 0.4 percent, according to the latest report from the Federal Reserve.

However, manufacturing production, which is the bulk of industrial production, barely edged forward at 0.1 percent. That was a slowdown compared to July (+0.4 percent), and came after declines in June (-0.4 percent) and May (-0.2 percent).

The growth in August occurred in mining (+1.4 percent), along with utilities up (+0.9 percent).

Over the past year, industrial production grew by only 0.2 percent, with manufacturing declining by 0.6 percent. And as SBE Council has noted before, the story on manufacturing output in the U.S. has been about stagnation and relative decline for the past 16 years. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

Manufacturing is a small business story in the U.S., with 93.1 percent of employer firms in manufacturing having fewer than 100 employees, according to the latest Census Bureau data (2020).

It also is a trade story, as imports are inputs to U.S. businesses, including manufacturers, and exports are about opportunities for manufacturers and their employees.

The problems in manufacturing aren’t about free trade or “off-shoring,” but instead are about, to a significant degree, governmental policies making it more costly to manufacture in the U.S., such as burdensome regulations, protectionist trade policies, and misguided labor policies. And of course, these burdens hit small manufacturers harder.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.