Mfg. Output Picked Up Slightly in June, Plastics Output Strong

According to data released this week by the Federal Reserve Board, the total output of the American manufacturing sector increased by 0.3% in June. This was the strongest monthly showing in this data since February. Output of durable goods in June increased by 0.5%, and one of the big gainers in this category was motor vehicle and parts, which posted a 1.3% gain. So the good news is that the U.S. industrial sector enjoyed some positive momentum at the end of the second quarter following several months of a steady-to-down trend.

Even better news is the trend in the data that measures output of plastics parts. Total U.S. production of plastics parts increased for the fourth consecutive month in June, and for the year to date the output of plastics parts is up a sterling 7% when compared with the first half of last year.
If they are making more plastics parts, then at some point they are going to need more molds and more equipment on which to make them.

Historical analysis suggests that demand for new molds rises sharply when the production of plastics parts expands at a rate of 4% or more for a sustained period of time. Plastics parts output has grown at a rate exceeding 4% for about the past year and a half. So if history is any guide, then moldmakers should soon start to enjoy a noticeable increase in demand for new molds.

At the present time, there are two large impediments to more rapid growth in the U.S. manufacturing sector. The first is the recent cutback in federal spending. Production of defense-related equipment is down substantially this year, and this is particularly noticeable in the data that measures output of military aerospace products. The second reason is the sluggish demand for U.S exports of manufactured goods that is caused by weak economic growth abroad, most notably in Europe.

The problems in Europe will not be solved anytime soon, but the decrease in federal spending will have a diminishing negative impact as time progresses. So the manufacturing sector suffered through a tough second quarter, but the trajectory in the most recent data suggest that the third quarter will be better. And the fourth quarter will be better still. Obviously, we will continue to track this data carefully, and we will let you know if there are any changes in these trends.