Unexpected Drop in Manufacturing Output Points to More Inflation Ahead


U.S. factory output slid last month as a shortage of computer chips disrupted auto production and capacity ultization continued to lag, pointing to further inflationary pressures ahead.

Manufacturing production dipped 0.1 percent in June — the third drop in five months, the Federal Reserve reported Thursday.

The decline was largely due to the auto sector. The chip shortage pushed the production of cars, trucks and auto parts down 6.6 percent in June. Excluding autos, industrial production rose 0.4 percent last month.

The contraction was deeper than expected. Economists, who are aware of the supply constraints facing the auto sector, forecast a 0.3 percent increase for manufacturing.

Capacity utilization in manufacturing, which measures how much of the productive capacity of U.S. factories is employed in production, fell one-tenth of a percentage point to 75.3. This measure is down three-tenths from a year ago. Compared with February 2020, just before the pandemic, this is down 1.2 percentage points.

This is well below levels that could cool off inflation in key areas of the economy. Capacity utilization in finished goods, which are thought to have the biggest impact on consumer prices, fell by one-tenth of a percentage point. – READ MORE

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