US manufacturing output dips as chip shortage weighs on motor vehicles

WASHINGTON (REUTERS) – Output at US factories unexpectedly fell in June as motor vehicle production dropped amid an unrelenting global semiconductor shortage.

Manufacturing output dipped 0.1 per cent last month after accelerating 0.9 per cent in May, the Federal Reserve said on Thursday.

Economists polled by Reuters had forecast manufacturing output climbing 0.2 per cent in June. Output at factories grew at a 3.7 per cent annualised rate in the second quarter after increasing at a 2.3 per cent pace in the January-March period.

Manufacturing, which accounts for 11.9 per cent of the US economy, is being supported by massive fiscal stimulus, low interest rates and continued strong demand for goods even as spending is shifting back to services. At least 160 million Americans have been fully vaccinated against the Covid-19, boosting spending on travel-related services and dining out among other activities.

The strong demand for goods is straining the supply chain, leaving manufacturers grappling with shortages of raw materials and labour. Production at auto plants declined 6.6 per cent last month.

The production cuts have boosted demand for used cars and trucks, the major driver of consumer inflation in recent months.

Motor vehicle and parts production contracted at a 22.5 per cent rate in the second quarter.

Excluding autos, manufacturing output increased 0.4 per cent in June. The dip in overall manufacturing output was offset by a 1.4 per cent jump in mining and a 2.7 per cent rebound in utilities to lift industrial production by 0.4 per cent last month.

Mining was driven by higher oil prices, which are supporting drilling activity. Hot temperatures in large parts of the country fuelled demand for utilities.

Industrial production grew at a 5.5 per cent rate in the April-June quarter after advancing at a 3.6 per cent pace in the first quarter.

Capacity utilisation for the manufacturing sector, a measure of how fully firms are using their resources, fell 0.1 percentage point to 75.3 per cent in June. Overall capacity use for the industrial sector 0.3 percentage point to 75.4 per cent. It is 4.2 percentage points below its 1972-2020 average.

Officials at the US central bank tend to look at capacity use measures for signals of how much “slack” remains in the economy – how far growth has room to run before it becomes inflationary.

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