US factory output stalls in July amid tariff pressures

US manufacturing production stalled in July, underscoring the strain tariffs and higher costs are placing on American factories. Data released by the Federal Reserve on August 15 showed factory output was unchanged from June, when it had risen by an upwardly revised 0.3 per cent. Economists had expected a slight decline of 0.1 per cent. Overall industrial production—which includes manufacturing, mining and utilities—slipped 0.1 per cent in July after a 0.4 per cent gain in June. On a year-over-year (y-o-y) basis, industrial output rose 1.4 per cent.

Manufacturing holds flat, vehicles lag

Manufacturing, which makes up about 10 per cent of the US economy, saw a mixed performance across sectors. Motor vehicle and parts production fell 0.3 per cent in July following a 2.5 per cent decline in June, reflecting both seasonal shutdowns for retooling and the added pressure of tariffs. Excluding autos, factory output edged down 0.1 per cent.

While durable goods manufacturing rose 0.3 per cent on gains in aerospace, electrical equipment, appliances and furniture, nondurable output decreased 0.4 per cent, with declines across textiles, apparel and petroleum products. Primary metals and machinery production also contracted. Mining output dropped 0.4 per cent, while utilities slipped 0.2 per cent after a sharp 1.8 per cent surge the previous month.

Tariffs add to headwinds

Economists point to tariffs on imported inputs, including steel, aluminium and motor vehicle parts, as a key drag on production. US President Donald Trump has imposed duties of up to 50 per cent on industrial metals and 25 per cent on autos, moves he argues will restore American industrial strength. But analysts warn the measures are squeezing businesses instead.

Goldman Sachs estimates that so far companies have absorbed most of the tariff-related costs, passing on only about 22 per cent to consumers. However, the bank expects firms to shift more of the burden to households in the coming months.

Capacity use declines

The Fed’s report also showed capacity utilisation, a measure of how fully firms are using available resources, eased to 77.5 per cent in July from 77.7 per cent the prior month. Manufacturing utilisation edged down to 76.8 per cent, both below long-run averages.

Despite weak factory output, US retail sales rose solidly in July, suggesting resilient consumer demand could offer some support in the months ahead. Still, with manufacturing job losses accumulating since April and key industry surveys signalling contraction, economists caution the outlook for the industrial sector remains fragile.

(With inputs from agencies)