Snaps
14 August 2020

US manufacturing’s long road to recovery

Manufacturing continues to bounce as factories re-open, but this story is fading and with output still 8.2% below the December level, the strains are clear. The oil and gas sector remains in dire state with the threat of job losses lingering over the whole industrial sector

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US industrial production came in exactly in line with market expectations, rising 3% month-on-month.

Manufacturing was up 3.4%, led by autos (+28.3%) with ex-autos posting a 1.6% gain. Utilities rose 3.3% as hotter than usual weather led to more electricity demand with AC units staying on longer and working harder. Rounding out the details, mining rose 0.8% although oil and gas drilling fell another 8% to leave that component 71.5% down YoY.

Level of industrial activity

 - Source: Macrobond, ING
Source: Macrobond, ING

Overall it is a decent outcome, but we caution that manufacturing output is still more than 8% lower than the most recent high in December.

The scope for further large gains on factory re-opening appears limited so additional gains will be determined much more by underlying economic fundamentals. Based on the high-frequency consumer sector data there is evidence of a plateauing in the recovery and it will be hard for the manufacturing sector to buck that trend.

In any case with capacity utilisation at relatively low levels (70.6% versus an average of 78% through 2019) corporate profitability remains under pressure which will constrain business appetite for investment and creating jobs.