Manufacturing Growth Rate Accelerates

The National Association of Manufacturers, in a recent report, showed that in July, year-over-year growth in manufacturing production was 1.2%, the slowest pace of growth in output for the sector since January 2010. According to the report, it was the culmination of weaknesses experienced among manufacturers since mid-2012 as global demand and domestic uncertainties weighed heavily on overall production, pushing it to disappointingly low levels.

Since then, however, there has been a pickup in new orders and overall sentiment. The year-over-year pace of manufacturing production was 3.3% in the Federal Reserve Board’s most recent industrial production report. Manufacturing output has risen 1.1% in just the past three months, with capacity utilization up from 75.7% to 76.2% over that time frame.

While there has been progress, some weaknesses persist for the sector. Nondurable goods production continues to lag behind durable goods, with year-over-year growth of 1.5% for nondurable goods firms relative to a much stronger 5.4% increase for durable goods. Moreover, manufactured goods exports remain slow, up 2.2% year-to-date through September relative to the same nine-month period in 2012.

The overall U.S. trade deficit widened from $38.7 billion in August to $41.8 billion in September largely on higher goods imports. Labor productivity in the manufacturing sector rose at a slower pace in the third quarter, up 0.4% versus the 2.7% gain in the second quarter. Output was higher in the third quarter, led by strong gains for durable goods businesses. Unit labor costs were down 0.4% for durable goods manufacturers, helping to make them more competitive globally.

Unit labor costs have decreased a whopping 11.1% for the durable goods sector since the end of the recession. In contrast, the numbers for nondurable goods manufacturers were more challenging, with third-quarter output down 0.3% and unit labor costs up 3.4%.