For the first time in eight months, industrial production has fallen.
The Federal Reserve report that industrial production fell by 0.3 percent in August is a “predictable speed bump” after three months of 0.5 percent growth, said David Huether, chief economist for the National Association of Manufacturers.
“The August drop was anticipated,” Huether said. “More than anything, this confirms my belief that the manufacturing recovery will continue to run on less-than all cylinders until a sustained recovery in business investment takes hold in 2003.
Much of the August decline was from utilities, which fell by 2.5 percent last month. For manufacturers, output edged down just 0.1 percent. “The most significant cause for the manufacturing correction was motor vehicles and parts, which after growing by an unsustainable 3.9 percent in each of the previous two months, dropped by 1.4 percent in August,” Huether said. “In addition, import-sensitive sectors such as apparel — where output fell 1.4 percent last month — are still trying to cope with an overvalued dollar, which remains 20 percent overvalued compared to its level in 1997.
“On a more positive note, production of both electronics and industrial equipment rose in August, the first tandem increase since May,” Huether said. “However, uncertainty surrounding the stock market will likely continue to moderate the production of business equipment for the rest of the year. Our members report they do not plan major investment purchases until early 2003. So, while a double-dip recession is not in the cards, the manufacturing recovery will continue at a restrained pace for the rest of the year.”