WASHINGTON- US manufacturing output barely rose in August amid a decline in motor vehicle production, and activity could contract in the months ahead after the United Auto Workers (UAW) union embarked on strikes at three factories on Friday.
The strikes, which for now only involve 12,700 of the affected 146,000 UAW members, were launched at a time when manufacturing is already struggling under the weight of the Federal Reserve’s hefty interest rate increases, which have reduced demand for goods, typically bought on credit.
“The risk is that action broadens over coming days,” said Michael Pearce, lead US economist at Oxford Economics. “We estimate a total walkout would reduce motor vehicle output by over 30 percent , which will begin to show up in the September report.”
Factory output edged up 0.1 percent last month after rebounding 0.4 percent in July, the Fed said on Friday. The gain was in line with economists’ expectations. Production was down 0.6 percent on a year-on-year basis in August.
Motor vehicle and parts output decreased 5.0 percent , almost reversing July’s 5.1 percent surge, when it benefited from difficulties adjusting the data for seasonal fluctuations related to annual plant shutdowns for new model retooling. Production of motor vehicles and parts was 5.9 percent higher on a year-on-year basis.
The UAW union began simultaneous strikes at three US factories owned by General Motors Ford and Chrysler parent Stellantis These companies account for about two-thirds of domestic motor vehicle production.
Manufacturing, which makes up 11.1 percent of the economy, was already on the ropes because of slowing demand for goods and higher borrowing costs for businesses and consumers. Since March 2022, the US central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25 percent -5.50 percent range.
Excluding motor vehicles, factory output increased 0.6 percent last month after being unchanged in July. It was, however, 1.1 percent lower compared to August last year.
There were increases in the output of primary metals, machinery, aerospace and miscellaneous transportation equipment as well as furniture and related products.
But production of wood products declined as did that of nonmetallic mineral products, fabricated metal products, and electrical equipment, appliances and components.
The industrial action in the auto sector could disrupt supply chains and push up motor vehicle prices, and unsettle a disinflationary trend that was becoming entrenched.
A separate report from the Labor Department on Friday showed import prices increased 0.5 percent in August as the cost of fuels accelerated after nudging up 0.1 percent in July.
But import prices declined 3.0 percent in the 12 months through August after decreasing 4.6 percent in July. Annual import prices notched their 7th straight monthly drop.
Excluding fuels and food, import prices decreased 0.2 percent , matching the decline in July. These so-called core import prices dropped 1.3 percent on a year-on-year basis in August. They added to data this week showing core consumer and producer prices rose moderately in August, which suggests inflation is making steady progress toward the Fed’s 2 percent target. – Reuters
