The US manufacturing sector saw a weaker-than-expected rebound in November, according to data released by the Federal Reserve. While motor vehicle production provided a boost, ongoing weakness in the aerospace industry tempered the overall growth. This underwhelming performance persisted despite the resolution of the Boeing factory workers’ strike in early November.
Factory output edged up by a mere 0.2% last month, following a downwardly revised 0.7% decline in October. Economists had projected a more robust 0.5% rebound. Year-over-year, factory production contracted by 1.0%, reflecting the lingering impact of the Boeing strike in prior months. Despite the strike’s conclusion, aerospace and miscellaneous transportation equipment production remained subdued, experiencing a 2.6% decline. This followed a steeper 6.7% drop in October, highlighting the challenges facing the sector.
Manufacturing, which contributes 10.3% to the US economy, continues to navigate a challenging landscape shaped by the Federal Reserve’s aggressive monetary policy tightening from March 2020 to July 2023.
Growth is anticipated in the coming year, supported by lower interest rates. However, potential tariffs on imported goods proposed by the incoming administration could escalate raw material costs, potentially offsetting some of the anticipated gains.
November’s bright spot was the motor vehicle and parts sector, which surged by 3.5%. This significant increase, however, was insufficient to counterbalance the weakness in other areas, particularly aerospace. Machinery output also contributed positively to durable manufacturing production, which rose by 0.7%.
Workers assembling cars in a factory
In contrast, nondurable manufacturing output declined by 0.3%. This decrease was driven by contractions in apparel and leather production, as well as petroleum and coal products and paper. The broader industrial production picture also reflected this weakness, slipping 0.1% in November after a 0.4% decline in October. Annually, industrial output was down 0.9%.
Beyond manufacturing, mining output fell by 0.9%, extending a downward trend from October. Utilities production also experienced a 1.3% decrease, attributed to unseasonably mild weather reducing demand for electricity and natural gas.
Capacity utilization for the industrial sector, a key indicator of resource usage by firms, dipped to 76.8% from 77.0% in October. This figure sits 2.9 percentage points below its historical average from 1972 to 2023. Within the manufacturing sector, the operating rate saw a marginal increase of 0.1 percentage point to 76.0%, but remains 2.3 percentage points below its long-run average. These figures suggest that there is still room for increased production within the existing capacity of the industrial sector.
In conclusion, the November manufacturing data paints a picture of uneven recovery. While certain sectors, like motor vehicles, show strength, persistent weakness in key areas like aerospace continues to hinder overall growth. The anticipated economic benefits of lower interest rates in the coming year may be tempered by potential trade policy changes. The performance of the manufacturing sector will remain a crucial indicator of the overall health of the US economy.
