Hurricane Ida and supply constraints hamper production at US factories

Shipping containers are unloaded from a ship at a container terminal at the Port of Long Beach-Port of Los Angeles complex, amid the coronavirus disease (COVID-19) pandemic, in Los Angeles, California, States United, April 7, 2021. REUTERS / Lucy Nicholson / File photo

  • Manufacturing production increases 0.2% in August
  • Industrial production increases by 0.4%; Hurricane Ida harms mining
  • Import prices fall 0.3% in August; up 9.0% year on year

WASHINGTON, Sept.15 (Reuters) – Production at US factories slowed sharply in August as Hurricane Ida forced factories to close and a continuing shortage of microchips hampered production of motor vehicles, but the manufacturing remains strong in a context of reduced inventories.

There was more good news on the inflation front. Import prices fell for the first time in 10 months in August, other data showed on Wednesday. Persistent bottlenecks in the supply chain, however, could keep inflation high. Federal Reserve Chairman Jerome Powell has argued that high inflation is transient.

“Future growth in the manufacturing sector will likely be supported by low inventories,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “But supply issues and shortages remain a constraint for now that prevent a stronger rebound.”

Manufacturing output rose 0.2% last month after rising 1.6%, the Fed said. The US central bank estimated that Hurricane Ida, which devastated US offshore energy production and cut electricity in Louisiana in late August, subtracted 0.2 percentage point from manufacturing output.

The hurricane shut down petrochemicals, plastic resins and petroleum refining plants. Economists polled by Reuters predicted that manufacturing output would gain 0.4%.

The drag from closures was offset by strong gains in the production of computer and electronic products, as well as furniture and related products. But the production of machinery fell, as did that of electrical equipment, devices and components, possibly due to shortages of raw materials, especially semiconductors.

Production at auto factories edged up 0.1% after jumping 9.5% in July when automakers lifted traditional summer plant closures for retooling as they adjusted their schedules to cope with the shortage of chips. The commodities crisis has been made worse by the latest wave of infections caused by the Delta variant of the coronavirus, mainly in Southeast Asia, as well as port congestion in China.

Motor vehicle production could fall in September. General Motors Co (GM.N) said it will cut production at its factories in Indiana, Missouri and Tennessee this month due to the microchip shortage. Ford Motor Co (FN) is also reducing truck production. Excluding autos, manufacturing output rose 0.2% in August after accelerating 1.1% in July.

Factory production is 1.0% above its pre-pandemic level.

Rising manufacturing output and a 3.3% rebound in utilities as unusually warm weather boosted air conditioning demand pushed industrial production up 0.4%. Industrial production rose 0.8% in July.

Mining production fell 0.6%, reflecting hurricane disruptions to oil and gas extraction in the Gulf of Mexico.

Stocks on Wall Street rose. The dollar slipped against a basket of currencies. US Treasury prices were mixed.

Industrial production


Capacity utilization in the manufacturing sector, a measure of how well businesses are using their resources, edged up 0.1 percentage point to 76.7% in August. Overall capacity use for the industrial sector increased by 0.2 percentage point to 76.4%. It is 3.2 percentage points lower than its 1972-2020 average.

Fed officials tend to look at capacity utilization metrics for signals of how much “slack” remains in the economy – how far growth has room before it turns inflationary.

Inflation appears to have peaked or is about to peak.

A second report from the Ministry of Labor showed that import prices fell 0.3% last month after rising 0.4% in July. The first drop since October 2020 brought the year-on-year increase down to 9.0% from 10.3% in July.


The report follows Tuesday’s news that consumer prices registered their smallest gain in seven months in August. Read more

Imported fuel prices fell 2.3% last month after rising 3.0% in July. Oil prices fell 2.4%, while the cost of imported food rose 0.6%.

Excluding fuel and food products, import prices fell 0.2%. These so-called “core” import prices rose 0.1% in July. The prices of imported capital goods and consumer goods, excluding automobiles, increased slightly.

“Inflation took a little rest in August, but the race or marathon is not yet over,” said Jennifer Lee, senior economist at BMO Capital Markets in Toronto.

A third New York Fed report showed its “Empire State” index on current trading conditions jumped to 34.3 this month from 18.3 in August. A reading above zero suggests an expansion in regional trade activity.

State of the Empire

Businesses in the region were very optimistic about improving business conditions over the next six months, with plans for capital and technology spending increasing dramatically.

But challenges on the supply side remained, with delivery time measurement reaching an all-time high.

While a measure of the prices paid for inputs by firms in the regions has fallen, it has remained at very high levels.

“Businesses and consumers are not out of the woods yet,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Nonetheless, we remain comfortable with our forecast that inflationary pressures will continue to moderate, ignoring the temporary effect of the hurricane in September.”

Reporting by Lucia Mutikani; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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