Manufacturing Ended Technical Recession in July but Longer Term Growth Keeps Faltering

Alan Tonelson |

Today's Federal Reserve's industrial production release showed that American manufacturing in July ended a seven-month stretch of cumulative inflation-adjusted shrinkage that represented its worst downtown since the partial recession year 2009. Yet the good monthly increase was fueled almost entirely by the automotive subsector's second straight strong summertime production surge – whose momentum quickly petered out last year. Moreover, on a year-on-year basis, real production in manufacturing, including in both durable and non-durable goods, is growing at its slowest rate in months, and industry overall has still not regained the production levels it hit just before the last recession began – more than seven years ago.

Here are the manufacturing highlights of the Federal Reserve's new release on July industrial production:

  • According to the Fed, constant dollar manufacturing production rose in July on month by 0.85 percent. This best showing since last November was led by a second straight sequential July surge in automotive manufacturing.
  • The July increase pulled the overall manufacturing sector out of its longest and worst downturn since recessionary 2009.
  • Real output of vehicles and parts jumped 10.56 percent on month in July – even faster than last July's 6.97 percent. This increase followed a 4.35 percent July monthly automotive output drop that was that sub-sector's biggest since last August.
  • Without the automotive boost, manufacturing output would still be in technical recession, with its cumulative inflation-adjusted production down since last November.
  • Revisions to previous Fed manufacturing production readings were mixed but small. The prior June 0.05 percent after-inflation monthly increase was revised down to a 0.30 decline, and May's 0.13 percent advance is now judged to have been only 0.09 percent. But April's 0.33 percent gain was revised up to 0.36 percent.
  • On a year-on-year basis, manufacturing's July real output improvement of 1.76 percent beat June's 1.72 percent. But the latter figure was revised down from 1.94 percent, and both numbers are by far the lowest since February 2014's 0.85 percent (depressed by another harsh winter).
  • Manufacturing's July year-on-year constant dollar production increase was also much smaller than 2013-2014's 4.55 percent jump but much bigger than 2012-2013's near flatline.
  • The monthly automotive jump helped real durable goods production grow by 1.25 percent in July, its best performance since August, 2013's 1.80 percent. In July, real durable goods output fell by 0.37 percent.
  • Nonetheless, the year-on-year durable goods numbers continued to worsen in July. Last month's annual output gain of 1.48 percent nosed out June's downwardly revised 1.43 percent. But as with industry overall, these increases were the worst since the winter of 2014 (in durable goods' case, since January).
  • Between July, 2013 and 2014, by contrast, constant dollar durable goods production soared by 7.25 percent – after dipping by 0.66 percent the previous year.
  • Non-durables' real output rose by 0.39 percent on a monthly basis in July, reversing two straight months of decline and their best showing since last November's 1.08 percent.
  • On a year-on-year basis, inflation-adjusted non-durable goods output climbed by 2.04 percent in July – the same as June's downwardly revised number. Both are the worst such figures for this year and the lowest since last October. Nonetheless, the yearly July non-durable goods production improvement bettered 2013-2014's 1.61 percent and 2012-2013's 0.91 percent.
  • Although manufacturing has grown strongly since its recessionary nosedive, as of July, its real output is still 1.67 percent lower than its level in December, 2007 – more than seven years ago, when the last recession began.
  • Durable goods production is now up 3.31 percent in real terms since then, and non-durables output is 7.72 percent lower than at its pre-recession peak in July, 2007.

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