Tariff truce reached as industrial production edges up
Posted by IndustryNet on Monday, December 17, 2018
A number of new reports out this week point to a manufacturing sector that is steadily growing – albeit at a slower pace. Industrial production edged up, while a new reading on manufacturing activity finds that new orders rose at its fastest rate in six months.
On the trade front, tariffs remain a top concern for manufacturing executives, though a 90-day truce between China and the United States has given the sector a little breathing room – and inspired a surprise move from China.
Industrial production up
U.S. industrial output edged up in November, according to a new report released by the Federal Reserve.
The Federal Reserve’s release on U.S. industrial production and capacity utilization showed industrial output rose 0.6 percent in October, continuing a steady rise in the index since June.
In October, manufacturing output outpaced overall gains, rising 0.3% in October, while mining output dropped 0.3%.
Manufacturing capacity utilization, which measures the extent to which industrial firms make use of their productive capacity, increased 0.4% in November to 78.5%. The Fed noted that the current reading for capacity utilization is 1.3% less than its long-run average, measured from 1972 to 2017.
Taking a look at industry groups, durable goods manufacturing production actually increased 0.2%, but this gain was wiped out by a 0.2% decrease in nondurable manufacturing. The primary metals industry posted a 2.5% gain, but most other industries either remained unchanged or posted losses.
Interestingly, primary metals manufacturing also posted an impressive gain in last month’s report, with production in that sector increasing 3% in October. This is concurrent with the Bureau of Labor Statistics’ most recent labor report, which found that the primary metals industry posted one of the strongest manufacturing job gains in November, up by 3,000 jobs or 11% of total manufacturing job gains.
On December 1st, President Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto signed the U.S. Mexico Canada agreement (USMCA) as the three leaders converged in Argentina for a summit. Trump also met with Chinese president Xi Jinping during that summit and the two leaders came to a tentative agreement regarding tariffs.
The Trump administration agreed to delay its promised 25% tariffs on $200 billion worth of Chinese goods, scheduled for January 1st, until March 1st, while Xi agreed to address American concerns over intellectual property and the trade imbalance.
True to its word, the Chinese Finance Ministry announced December 14th that it would decrease tariffs on imports of U.S.-made vehicles from 40% to 15%. Although the decrease will be good for just three months, both nations appear to be taking significant step in reducing the threat of an all-out trade war and provide at least temporary relief for many U.S. manufacturers.
A number of industrial companies have been scrambling to procure supplies from China ahead of the January deadline, which had the effect of worsening the trade imbalance. Recent U.S. Census Bureau data points to a widening trade gap, with its December report finding that October’s imports of goods hitting its highest level on record, at $217.8 billion.
ISM and Markit agree: U.S. manufacturing is expanding
The most recent IHS Markit U.S. Manufacturing Purchasing Managers’ Index was released December 3rd, and found that manufacturing activity in the U.S. expanded at a somewhat slower rate in the month of November. The IHS Markit Index dipped to 55.3% in November, down a few notches from October’s 55.7% reading. New orders rose at the fastest rate in six months, according to the survey, and employment was at its strongest level in a decade.
The Markit survey also found that industrial production was still seeing robust growth, though the rate of expansion had dropped to its lowest level since September 2017. New exports also posted growth as did buying activity.
The Markit Index is somewhat different from the Institute for Supply Management’s survey of manufacturing executives, which found U.S. industrial activity in November jumped 1.6% from October to a level of 59.3%.
But one thing that the two groups agree on, U.S. manufacturing is still experiencing robust growth, with both indices hitting levels indicative of expansion.
Solutions for manufacturers
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