Unexpected Fall in Manufacturing Points to Make More Inflation Ahead – Real Pundit

U.S. factory output slumped last month due to a shortage of computer chips that disrupted auto production and sustained capacity that continued to weaken, pointing to further pressure on inflation.

Manufacturing production jumped 0.1 percent in June – the third drop in five months, the Federal Reserve reported on Thursday.

The downturn is largely due to the auto sector. The chip shortage pushed the production of cars, trucks and auto parts by 6.6 percent in June. Excluding autos, industry production rose 0.4 percent last month.

The decline is deeper than expected. Economists, aware of the supply constraints faced by the automotive sector, estimate a 0.3 percent increase in manufacturing.

Manufacturing capacity utilization, which measures how much of the productive capacity U.S. factories use to manufacture, fell by a tenth of a percentage point to 75.3. This measure is down by three-tenths from last year. Compared to February 2020, before the pandemic, this is down 1.2 percentage points.

These are very low levels that could cool inflation in key parts of the economy. Capacity utilization of the finished product, which is thought to have the greatest impact on consumer prices, fell by a tenth percentage point. – READ MORE

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