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Blog

Manufacturing Output Steadies Despite Inflationary Pressures

September 26, 2022
Author: Forest2Market

Total industrial production (IP) increased 0.6% (+3.9% YoY) in July. Manufacturing output gained 0.7% after having fallen 0.4% in each of the two previous months. The production of motor vehicles and parts rose 6.6%, while factory output elsewhere moved up 0.3%. The index for mining increased 0.7% (oil and gas drilling reached a seven-year high), while the index for utilities decreased 0.8%.


The Institute for Supply Management’s (ISM) monthly sentiment survey for August 2022 showed no change among US manufacturers reporting expansion. The PMI registered 52.8%, unchanged from July. (50% is the breakpoint between contraction and expansion.) Subindexes with the largest changes include input prices (-7.5PP), employment (+4.3PP), inventories (-4.2PP), and new orders (+3.3PP). Of the industries we track, only Real Estate and Construction expanded.

IHS Markit’s survey headline results, both of which declined, were more pessimistic than their ISM counterparts. “U.S. factory production was down for a second month running in August,” wrote Markit’s Chris Williamson, “with demand for goods having now fallen for three straight months amid the ongoing impact of soaring inflation, supply constraints, rising interest rates and growing economic uncertainty about the economic outlook.

“U.S. factory production was down for a second month running in August,” wrote Markit’s Chris Williamson, “with demand for goods having now fallen for three straight months amid the ongoing impact of soaring inflation, supply constraints, rising interest rates and growing economic uncertainty about the economic outlook.


“Falling demand for raw materials has, however, taken pressure off supply chains and helped shift some of the pricing power away from sellers towards buyers. Likewise, we are seeing more manufacturers reduce their selling prices to drive sales. Although still elevated by historical standards, the survey’s inflation gauges are now at their lowest for one and a half years, which should help to bring consumer price inflation down in the coming months.”

ISM_Sept_2022


The consumer price index (CPI) was unchanged in July (+8.5% YoY) after rising 1.3% in June. The gasoline index fell 7.7% in July and offset increases in the food and shelter indexes. The energy index fell 4.6% MoM (but +32.9% YoY) as the indexes for gasoline and natural gas declined, but the index for electricity increased. The food index continued to rise, increasing 1.1% MoM (+10.9% YoY, the largest 12-month increase since May 1979) as the food at home index rose 1.3%. In a related note, the cost of owning and operating a new car has jumped to over $10,000/year, nearly +11% YoY. Also, the bundle of items people typically spend most of their paychecks on (i.e., natural gas, electricity, gasoline, and food at home) was 26% more expensive in July than a year earlier.


Meanwhile, the producer price index (PPI) fell 0.5% (+9.8% YoY). This decline, which followed advances of 1.0% in June and 0.8% in May, is attributable to a 1.8% retreat in prices for final demand goods—led by a 16.7% drop in the gasoline index that was partially offset by a 43.1% jump in the index for chicken eggs. The index for final demand services advanced 0.1%, led by a 12.3% rise in margins for fuels and lubricants retailing.
Price index performance in the forest products sector included:


• Pulp, paper & allied products: +0.7% (+13.7% YoY)
• Lumber & wood products: -0.4% (+3.2% YoY)
• Softwood lumber: +0.8% (7.0% YoY)
• Wood fiber: +0.7% (+5.9% YoY)

economic outlook

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