The robust recovery of the manufacturing sector, which is responsible for the employment of an increasing number of people, is supported by the robust demand for products. The decline in house building, on the other hand, may be attributed to the increase in borrowing rates.
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According to data that was released by the Federal Reserve on Tuesday, it was found that in July, industrial output in the United States recovered more than was anticipated owing to a substantial boost from the automotive manufacturing sector (Fed, central bank).
The output in the industrial sector increased by 0.6% compared to the previous month, which was more than the 0.3% increase that experts had anticipated. The rise will be 3.9% by the end of July 2021.
This improvement is mostly attributable to the rise in the production of automobiles and automobile components, which increased by 6.6% after exhibiting a downward trend for a period of six consecutive months. This industry, which plays a crucial role in the creation of labor, has been particularly unsettled for the last year and a half as a result of the scarcity of semiconductors, which has been slowing down the manufacture of automobiles.
The robust demand for products continues to provide support for the manufacturing sector, which accounts for 11.9% of the GDP in the United States, despite the fact that consumers' spending is increasingly turning toward services. However, the hazards are growing as a result of merchants carrying an excessive amount of inventory, particularly clothes.
In the manufacturing sector, capacity utilization, which measures how efficiently businesses are using their available resources, increased by a half of a percentage point in July, reaching 79.8%. It is 1.6 percentage points more than its average over the long run. The overall capacity utilization of the industrial sector increased to 80.3% in July, up from 79.9% the previous month. It is 0.7 percentage points more than its average between 1972 and 2021.
It's possible that a stronger dollar brought on by more stringent monetary policy may drive up the cost of goods exported from the United States. Since March, the Federal Reserve in the United States has implemented a 225-point increase in its interest rate. The rapid tightening of monetary policy has increased worries of a recession, which has had a negative impact on the attitude of company owners.
In the meanwhile, inflation and rising loan charges as a result of rate rises from the Federal Reserve are eating away at consumer demand.
When searching for indications of the "slack" still present in the economy, officials from the Federal Reserve have a tendency to turn to measures of capacity utilization. Slack refers to the wiggle room growth has before it becomes inflationary.
Housing construction falls in the US
As a result of higher mortgage rates and the cost of construction materials, the number of homes being constructed reached its lowest level in almost a year and a half in the month of July. This finding suggests that the housing market may continue to decrease in the future year. the third month of pregnancy
The data that was released by the Department of Commerce on Tuesday also revealed that the number of prospective house construction permits decreased to their lowest level in ten months. This fall was mostly seen in single-family dwellings.
The housing market has been hurt the hardest by the aggressive interest rate rises that have been implemented by the Federal Reserve in an effort to chill the economy and bring inflation under control.
In the most recent month, the number of homes that were started being constructed fell by 9.6% to a seasonally adjusted annual rate of 1.446 million units. This is the lowest level seen since February 2021. The numbers for June were changed such that they were somewhat higher, coming in at a pace of 1.599 million units as opposed to the 1.559 million units that were originally published. Reuters' survey of economic experts found that most of them anticipated a slowdown in new home construction to a pace of 1.54 billion units.
Since March, the Federal Reserve has increased its policy interest rate by 225 basis points in an effort to bring inflation back down to the 2% level that it had targeted. The interest rates on mortgages, which move in the same direction as the yields on US Treasuries, have increased even more.
According to statistics provided by the mortgage financing organization Freddie Mac, the average rate for a 30-year fixed-rate mortgage is now 5.22%. This represents a significant decrease from the beginning of the year, when it stood at 3.22%. As we moved into the second trimester, residential fixed investment dropped at its fastest rate in the last two years, and there is more turmoil on the horizon.
The National Association of Home Builders/Wells Fargo housing market confidence index had its eighth consecutive monthly decline in August, falling below the 50-point breakeven threshold for the first time since May 2020, according to a poll that was published on Monday. The primary contributors were increases in both the cost of building and interest rates on mortgages.
In July, the building backlog continued to expand as a result of growing expenses and a lack of available personnel.
The number of residences that have been authorized for building but on which work has not yet begun increased by 5.0% to 296,000 different units. The portfolio of single-family homes expanded by 2.1% to a total of 146,000 units. It is expected that the order book will prevent the collapse of the house building industry.