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Focus: Manufacturing

Feature Article from Our Manufacturing Subject Area - See All

From SCDigest's On-Target E-Magazine

- August 18, 2014 -

Supply Chain News: US Manufacturing Output at Last Makes it Back to Pre-Recession Levels


Federal Reserve Says July Output Finally Made it Over Peak 2007 Levels - Seven Years Later


SCDigest Editorial Staff

It's only taken some seven years, but US manufacturing output has at last reached its pre-recession highs.

SCDigest Says:


Will manufacturing output continue on its run, taking the US well beyond the 100 level versus 2007? That of course is the trillion question.

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We've been on something of a watch here at SCDigest in recent months, as US manufacturing levels slowly but surely ascended towards their 2007 highs.


That as measured by the Federal Reserve's monthly index on manufacturing output. We'll note here that we are referring to manufacturing output only, not the broader measure of total industrial output, which includes production from mining and utilities in addition to manufacturing. That measure went passed 2007 figures early in the year.


2007 to date had been the peak year for US manufacturing output. In the Fed's methodology, the average monthly output throughout 2007 is set at an index level of 100, against which all other months before and since are then compared.


So, that means the just released July index reading of 100.7 indicates output last month for the first time has exceeded that 2007 average, by seven-tenths of a point. It seemed clear that was going to happen soon, barring an unexpected economic pullback, and July it was, as output jumped from a revised 99.8 in June to the 100.7 level.


Although it is possible that number could be revised down next month, the healthy cushion over the 100 mark makes it unlikely a revision would take it all the way back below that level.


It has been a long slow climb. As can be seen in the chart below, the index began falling in early 2008, then plummeted when the financial crisis hit in Fall of that year, eventually reaching a bottom of 80.3 in June of 2009.


That means US production was down 20% from the peak 2007 - a dramatic decrease in historical terms.


It has been a straight diagonal path up from there, but as we know the recovery has been a modest one at best, meaning we are into the seventh year from the end of 2007 to get back to those levels.





While for the economy this is certainly good news, to be clear this of course is an aggregate number across all sectors. How well different sectors have recovered since 2007 varies widely.

(Manufacturing Article Continued Below)




When looking at individual manufacturing sectors, it's easy to get a little confused by how the Fed calculates the numbers. All sectors have an index score that is compared to the average monthly output for that sector in 2007; however, unlike the overall score for all manufacturing, 2007 may or not have represented the peak output year for that sector (though it turns out it was for quite a few).


So, for example, the index reading in June for primary metals production of 104.6 means output was 4.6% above 2007 levels. However, while output that year was high, the peak year was actually in 1999. So, output is actually still down a bit from the peak in that sector.


Below is a table of select US manufacturing sectors and their June monthly scores (we have not processed all the July sector data yet, which was just released on Friday


June 2014 Output Levels by Select Sectors vs 2007 Average Production


Consumer Goods
Consumer Durables
Chemicals NAICS 325  
Computers and Electronics NAICS 334
Primary Metals NAICS 331
Furniture NAICS 337
Machinery NAICS 333
Motor Vehicles and Parts NAICS 336
Plastic and Rubber Products NAICS 326
Paperboard NAICS 32213
Food NAICS 311
Fabricated Metal ProductsNAICS 332
Hardware NAICS 3325 
Heavy Duty Trucks 33612 
Apparel and Leather Goods NAICS 315 and 316


As can be seen, output compared to 2007 levels varies quite broadly across these different sectors.


While US manufacturing output has at last reached the 2007 peak, another metric reported on by the Federal Reserve, US factory capacity utilization, just can't get back to its long run average. Capacity utilization jump half a percentage point to 77.8%, but the metric just has been unable to get back to its 40-year average of 78.7%. In the mid-1990s, utilization reached an amazing 85% level.


Will manufacturing output continue on its run, taking the US well beyond the 100 level versus 2007? That of course is the trillion question.



What is your reaction to the US finally getting back to 2007 levels? Where do we go from here? Let us know your thoughts at the Feedback section below.

Recent Feedback

Productivity is good and it's nice to see some good numbers for a change, although numbers coming from the government aren't all that exciting for me. Output doesn't equal progress without taking into account many other factors. I don't think we need to reach any particular level as seen in the past in order to judge some means of progress of output for the present or future. US manufacturing in general continues to drive toward being leaner and more efficient. We're on the road to defining new levels, these new levels will stand on their own ground and we'll need to define our new peaks, outputs and metrics. These new levels may very well be lower than in the past, but at the same time most manufacturers are making strides to operate and output product in a more efficient manner. We need not reach levels of the past to be profitable in the future.  

Dave Kearns
Manufacturing Supervisor
Aug, 23 2014