U.S. manufacturing output in September drops due to chip shortages, Hurricane Ida, while demand remains strong

• September’s manufacturing production output dropped 0.7%

• Automobile output fell 7.2%; mining slumped 2.3%

• August’s data was revised to mark a drop in production of 0.4%, which was earlier reported as increase of 0.2%

Last month, manufacturing production at U.S. factories fell by the most in seven months mostly affected by the ongoing global chip shortage depressing the car manufacturing heavily, and Hurricane Ida which severely disrupted output at mines.

The report published by the Federal Reserve on Monday followed the last week’s data showing a solid rise in inflation in September. The manufacturing report further suggests that supply constraints were hampering economic growth.

The data showed manufacturing output fell 0.7% in September, the largest decline since February. On the contrary, August’s report was revised down to show production falling 0.4% which was previously reported as a growth of  0.2%.

It was the second time since April 2020, manufacturing output fell for two straight months.

The output of September increased 4.8% compared to the the year earlier.

Manufacturing  accounts for 12% of the U.S. economy, is underpinned by businesses worried to restock after inventories were drawn down in the first half of the year amid strong demand for goods.

Over the course of COVID-19 induced pandemic, and the resurgence in the new infections forced the consumer spending pattern to shift to goods from services, such as travel and dining out, straining supply chains.

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Automobile production drop

The drop in production output is mainly due to the reduced manufacturing in the automobile sector.

The global shortage of semiconductors has forced the production at auto plants to drop 7.2% after falling 3.2% in August.

Although, automakers have announced production cut earlier which helped the production to drop, there is also a shortage of workers at ports, causing congestion and holding up the delivery of raw materials.

Excluding automobile, production dropped 0.3%. With autos and consumer energy products output tumbling, consumer goods production fell 1.9% last month. There were, however, increases in the production of primary metals and electrical equipment, appliances and components as well as furniture and related products.

Output if nondurable goods dropped 1.0%, with large decreases in chemicals, petroleum and coal products.

Overall, manufacturing output increased at a 5.3% rate in the third quarter after growing at a 5.0% pace in the second quarter. Motor vehicle and parts production rebounded at an 8.6% rate as manufacturers scrapped annual plant closures for retooling over summer to manage their chip supply. Motor vehicle output plunged at a 24.6% pace in the second quarter.

Picture Credit: Global Fasteners