Industrial production rebounded in October with a gain of 1.6% after a significant slowdown in September because of Hurricane Ida, pointing to healthy growth for the rest of the year.
Output gains were recorded in every category from manufacturing to utilities to mining.
Output gains were recorded in every category from manufacturing to utilities to mining as constraints in energy and automobile supplies eased. The gains will have major implications on inflation in the coming months because energy and auto prices contributed about one half of the total increase in the consumer price index in October.
The increase in the headline industrial production index came after a 1.3% decrease in September with about half of the gain coming from the recovery after the hurricane, according to a report from the Federal Reserve on Tuesday.
Manufacturing output posted a sharp increase of 1.2%, led by a rise of 11.0% in motor vehicles and parts. This increase was particularly encouraging after two disappointing months of auto production in August and September, which were down by 3% and 7.1%, respectively.
The auto industry has always been critical to the health of the manufacturing sector, employing thousands of workers. This year, the persistence of the chip shortages has had a significant impact on automakers, causing factories to close and firms like Toyota and Ford to cut production in recent months.
On the other hand, auto prices were one of the main reasons that inflation reached a three-decade high in October. Such a gain in auto production will help to ease some of the supply pressures that have driven the price increases since the pandemic hit.
Also in the report, the output of utilities rose by 1.2% and mining output recorded a strong rebound with a 4.1% increase on the month, releasing some constraints on energy supply that have had a significant impact on gasoline and fuel prices.
The capacity utilization rate for the industrial sector rose by 1.2 percentage points to 76.4% on the month, while still being down by 3.2 percentage points compared to its long-run average from 1972 to 2020.
The takeaway
There is plenty of room for industrial production to continue to rebound to its long-term average in the final months of the year and next year as demand for industrial goods remains strong despite headwinds from supply constraints and labor shortages.
