Fed: Midwest manufacturing slows in August

By Dow Jones Newswires
Posted Sep. 27, 2010 at 2:28 p.m.

Manufacturing activity slowed in the Midwestern U.S. during August, as automakers chose to stop building up inventories, the Federal Reserve Bank of Chicago reported Monday.

The Chicago Fed’s Midwest Manufacturing Index dropped 1.4 percent to a seasonally-adjusted level 79.9 in August, from a downwardly revised 1.9 percent in July. The July index stands at 81.0, down from the original estimate of 81.4.

Despite the monthly setback, regional manufacturing was up 8.5 percent from August of last year, better than the 6.5 percent annual increase on a national basis.

Still, the latest data provide new evidence of a disappointingly slow economic recovery, as detailed Friday by Federal Reserve Chairman Ben Bernanke.

And, Monday, the Chicago Fed said its August National Activity Index had fallen to -0.53 in August, the lowest since February, from a -0.11 in July. The closely watched three-month moving average of the same index dropped to a 2010 low of -0.42, from -0.27 in July.

Combined, the two Chicago Fed reports may embolden positions of many investors who believe the nation’s central bank will soon embark on another round of quantitative easing, a stimulative action designed to keep down long-term interest rates by purchasing U.S. Treasurys and mortgage-backed securities.

The five states that make up the Chicago Fed’s heavily-industrialized districts are Illinois, Michigan, Indiana, Wisconsin, and Iowa.

In the Midwest region, auto sector output tumbled 6.9 percent in August, after a 7.6 percent increase in July.

Automakers completed their inventory build in July. For now, production will match sales gains, which have been “fairly flat,” said William Strauss, a Chicago Fed senior economist and advisor.

Compared to August of last year, regional auto output was up 12.2 percent, above the 7.8 percent annual increase nationwide. For the month in August, national auto production fell 1.8 percent.

The three other major components of the manufacturing index — machinery, steel, and resources — all posted modest production increases in August.

Machinery output edged up 0.3percent in August on the heels of a 0.2 percent increase in July. It lagged behind national machinery production, which was up 0.7 percent in August and 12.2 percent higher compared to August of last year.

Year-over-year machinery output was 8.1 percent higher in the Midwest.

Regional steel production increased 0.8percent in August, identical to July’s monthly gain. For the year, steel output jumped 21.7 percent, far better than the 13.1 percent annual gain nationwide. For August, national steel production rose 1.1 percent.

Midwestern resource output was 0.9 percent higher in August, recovering from a 0.5 percent decline in July. Food, wood, paper, and chemical production posted monthly increases, with only nonmetallic output down for the month, according to the Chicago Fed.

Compared to August of last year, regional resource output was up 4.2 percent, surpassing the 2.7 percent increase nationwide.

The Chicago Fed compiles the data by measuring the number of hours worked in its five states.

The next Chicago Fed’s Midwest manufacturing index is due for release Oct. 27.

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