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U.S. manufacturing production was soft in June, reflecting supply bottlenecks and constraints
*Industrial production (IP) rose a modest 0.4% in June and production in manufacturing was flat despite robust product demand, highlighting constraints imposed by supply chain bottlenecks and labor shortages. A significant 2.7% increase in electric and gas utility production lifted the headline number.
*Industrial production of final products declined 0.1%, as production of consumer goods fell 0.3% and production of business equipment fell 0.6%. Of note, highlighting supply chain bottlenecks, the production of automotive products fell 5.4% (Chart 1), which contributed to a decline of 2.6% in the production of consumer durable goods. The production of computers, videos and audio equipment, on the other hand, rose 2.5% (Chart 2). The production of consumer nondurable goods rose 0.4%, lifted by a 2.1% rise in energy production, but fell 0.3% in nonenergy (food, clothing, chemicals, and paper) sectors. Broken down by industry, standouts include a decline of 6.6% in motor vehicles and parts, a decline of 2.3% in electrical equipment, appliances and components, and a decline of 0.6% in machinery.
*Semiconductors, some commodities and materials are reported to be in short supply. Many businesses are also reporting shortages in labor. Many businesses are struggling to keep up with strong product demand and rebuild depleted inventories. The big issue is when will disruptions to production dissipate? We expect them to continue in coming months, and some will last longer. Some inputs to production, like sophisticated semiconductors (produced in the U.S. and internationally), involve complex production issues, and it remains uncertain when shortages will end. In the meanwhile, amid strong demand, these constraints are boosting prices for both producers and consumers.
Chart 1.
Chart 2.
Mickey Levy, mickey.levy@berenberg-us.com
Member FINRA & SIPC
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