Hurricane Ida, supply constraints hinder US factory production

Freight containers unload from a ship at a container terminal at the Port of Long Beach-Port of Los Angeles complex, in the middle of the coronavirus pandemic (COVID-19), in Los Angeles, California, USA, April 7, 2021. REUTERS / Lucy Nicholson / File Photo

  • Manufacturing production increased by 0.2% in August
  • Industrial production increases 0.4%; Hurricane Ida damages mining operations
  • Import prices fall 0.3% in August; up 9.0% compared to the previous year

WASHINGTON, September 15 (Reuters) – Production at US factories declined sharply in August as Hurricane Ida forced plant closures and an ongoing shortage of microchips dampened motor vehicle production, but production remains strong among lean stocks.

There were more commodity news on the inflation front. Import prices fell for the first time in ten months in August, other data showed on Wednesday. Persistent bottlenecks in the supply chain can, however, keep inflation high. Federal Reserve Chairman Jerome Powell has argued that high inflation is transient.

“Growth in manufacturing in the future is likely to be supported by low inventories,” said Rubeela Farooqi, chief economist in the United States at High Frequency Economics in White Plains, New York. “But supply and scarcity issues are currently a constraint that prevents a stronger recovery.”

Manufacturing production increased 0.2% last month after increasing by 1.6%, says the Fed. The US Federal Reserve estimated that Hurricane Ida, which destroyed US offshore energy production and cut off power in Louisiana at the end of August, deducted 0.2 percentage points from manufacturing output.

The hurricane led to the closure of facilities for petrochemicals, plastic resins and petroleum refining. Economists polled by Reuters had predicted that manufacturing production would increase by 0.4%.

The move from the closures was offset by strong gains in the production of computer and electronics products as well as furniture and related products. However, the production of machinery as well as electrical equipment, appliances and components decreased, probably due to a shortage of raw materials, especially semiconductors.

Production at car factories increased 0.1% after jumping 9.5% in July when carmakers scrapped the traditional summer closures for remodeling as they adjusted their schedules to deal with the chip shortage. The commodity crisis has been exacerbated by the latest wave of infections driven by the Delta variant of the coronavirus, mainly in Southeast Asia, as well as by congestion in ports in China.

Motor vehicle production may fall in September. General Motors Co. (GM.N) said it would reduce production at its factories in Indiana, Missouri and Tennessee this month due to a shortage of microchips. Ford Motor Co (U.N) also reduces truck production. Excluding cars, production increased by 0.2% in August after accelerating 1.1% in July.

Factory production is 1.0% above the level before the pre-pandemic.

The increase in production production and a 3.3% recovery in energy supply due to uneven hot weather increased the demand for air conditioning and increased industrial production by 0.4%. Industrial production increased 0.8% in July.

Mining production fell 0.6%, reflecting hurricane-induced disruptions in oil and gas extraction in the Gulf of Mexico.

Shares on Wall Street rose. The dollar slipped against a basket of currencies. US state tax rates were mixed.

Industrial production


Capacity utilization for the manufacturing sector, a measure of how fully companies use their resources, rose 0.1 percentage points to 76.7% in August. Total capacity utilization for the industrial sector increased by 0.2 percentage points to 76.4%. That is 3.2 percentage points below the average for 1972-2020.

Fed officials tend to look at capacity-building measures for signals about how much “slack” is left in the economy – how far growth has to take before it becomes inflationary.

Inflation seems to have peaked or is close to doing so.

A second report from the Labor Department showed that import prices fell 0.3% last month after rising 0.4% in July. The first decrease since October 2020 reduced the increase compared to the previous year to 9.0% from 10.3% in July.


The report followed the news on Tuesday that consumer prices noted their lowest profit in seven months in August. Read more

Imported fuel prices fell 2.3% last month after rising by 3.0% in July. Oil prices fell 2.4% while the cost of imported food rose 0.6%.

Excluding fuel and food, import prices fell by 0.2%. These so-called core import prices rose 0.1% in July. There were small gains in the prices of imported capital goods and consumer goods, excluding cars.

“Inflation took some breath in August, but the race or marathon is not over yet,” said Jennifer Lee, senior economist at BMO Capital Markets in Toronto.

A third report from the New York Fed showed that its “Empire State” index of current business conditions rose to 34.3 this month from 18.3 in August. A reading above zero indicates an expansion of the regional business.

Empire State

Companies in the region were very optimistic that business conditions would improve over the next six months, with plans for capital and technology spending increasing markedly.

But the supply side challenges remain, with delivery times measuring record highs.

While a measure of the prices paid for inputs from companies in the regions fell, it remained at very high levels. Manufacturers reported that prices rose for their goods, with the survey measuring prices received marking its third record high.

“Businesses and consumers are not out of the woods yet,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Nevertheless, we remain comfortable with our forecast for inflationary pressures to dampen further, by abstracting from the temporary hurricane effect in September.”

Reporting by Lucia Mutikani; Editing by Andrea Ricci

Our standards: Thomson Reuters Trust Principles.


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