Output at the nation's mines rose 1.8 percent, and utilities production accelerated 3.9 percent as energy requirements for air-conditioning increased with above-normal temperatures. After declining 0.5 percent in August, manufacturing, which accounts for the majority of industrial activity, bounced back with a 0.5 percent expansion to finish the third quarter at an annualized 3.5 percent growth rate. The Federal Reserve lowered the manufacturing sector's August output from an initially reported 0.4 percent decline.
September's heady industrial output was 4.3 percent higher than the same month a year earlier and handily offset the 0.2 percent decline in August, resulting in an annualized 3.2 percent expansion rate for total industrial activity in the third quarter.
"This was a very encouraging report, and the strong performance in the manufacturing sector will go some way in allaying fears about weakening momentum in this sector," TD Securities' Millan Mulraine said in a published report.
Both consumer goods and business equipment manufacturing rebounded from August declines with respective expansions of 0.5 percent and 0.3 percent. The production of aerospace and transportation equipment jumped 1.7 percent, an indication manufacturers in that industry were responding to the steep surge in civilian aircraft orders in July. However, auto production fell again, dropping 1.4 percent and confounding economists, who expected a quick turnaround from a 7 percent plunge in August.
Total industrial capacity utilization rose 0.6 points to 79.3 percent, the highest level in more than six years but still below the long-run average of 80.1 percent. Manufacturing operating rates rose just 0.2 points to 77.3 percent, compared with the long-run average of 78.7 percent. Despite record backlogs and continued orders for goods, manufacturers are operating at well below historical capacity levels, a troubling sign for economists, who see a widespread lack of inflationary growth. Weak inflation could delay Fed policymakers from raising interest rates, a move widely expected sometime next year.
Analysts predict manufacturing will continue to drive the U.S. economy in the fourth quarter. "Going forward, we expect manufacturing will remain one of the stronger areas of the economy," The Wall Street Journal reported economist John Ryding as saying, "helped by an upswing in capital spending." The production of business equipment rose 0.3 percent in September after falling 0.2 percent in August and a 1.2 percent jump in July.
The U.S. economy grew by 4.6 percent in the second quarter, buoyed by the manufacturing sector's 6.8 percent expansion in the April-to-June period. Manufacturing will need to continue its robust contribution to the economy, as a 0.3 percent decline in September retail sales, a sign of continued passive consumer spending, could put economists' third-quarter forecasts of above-3 percent GDP growth in jeopardy. An early estimate for third-quarter GDP is due from the federal government at the end of this month.
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Metalworking machinery demand rose marginally in August after weakening significantly in July while cutting tool consumption fell into a deeper slump, but industry officials remained upbeat in anticipation of re-strengthening activity over the rest of the year.
August metal cutting, forming, and fabrication machinery sales totaled $356.7 million, a 0.4 percent increase from July but a 6 percent decline compared with the same month a year ago, according to the U.S. Manufacturing Technology Orders report published by the Association For Manufacturing Technology (AMT). With a $3.1 billion total through August, machinery sales this year fell 0.1 percent further behind last year's pace and now trails by 2013 year-to-date sales by 2.4 percent.
The $166 million total in cutting tool purchases in August was down 2.7 percent from July and down 3 percent from August 2013, according to the Cutting Tool Market Report jointly released by AMT and the United States Cutting Tool Institute. Cutting tool consumption fell 1.1 percent in July. Tom Haag, president of the USCTI, said the August tumble was unsurprising, noting that the summer months are when shops take vacation and auto plants retool production lines for the next model year.
Haag's comment reflects the 7 percent drop in motor vehicle and part production in August, according to the Federal Reserve's latest U.S. industrial production report (see story above).
"The three-month rolling average actually shows the sales as fairly steady throughout the summer," said Haag. "The third quarter should close much stronger with September bringing the industry back to full speed and the IMTS exhibition driving new interest with record attendance," he added, referring to September's International Manufacturing Technology Show in Chicago that drew over 114,000 manufacturing professionals.
Officials anticipate machine tool sales to pick up after new machinery introductions at IMTS and as shops upgrade their capital equipment to meet greater production demands. Data from the Fed indicates that U.S. manufacturing rebounded 0.5 percent in September after a 0.5 percent drop in August, highlighting an early autumn pick-up. AMT has noted that many manufacturers, which are already working off record backlogs, are still running equipment that is over 20 years old and will need to acquire new machinery.
Still, other economic indicators suggest that momentum growth could be a challenge ahead for manufacturers. Factory orders tumbled 10.1 percent in August, according to the Commerce Department, and the Institute for Supply Management's closely watched manufacturing index showed a 6.7 percent softening in new orders in September. Although most economists expect manufacturing to help carry the U.S. economy in the fourth quarter, some are worried about the slowdown in the global economy, which could weaken exports, as well as continued sluggish domestic consumer spending.
Manufacturers are operating at their highest capacity levels in recent memory but are still well below their historical rates, despite a continuing build-up of record backlogs. According to ISM, manufacturers' shipments edged up 0.1 percent in September. Plus, Labor Department figures show manufacturing employment has mostly stagnated since July. The sector added just 4,000 positions in September.
Prices for material-handling equipment have risen moderately over the past three years, but manufacturers should consider electrically driven equipment as well as leasing and renting options to counter high long-term ownership costs, according to research firm IBISWorld in a new report.
IBISWorld said respective prices for pallet trucks and forklifts are growing at 2.9 percent and 2 percent annually, but the costs beyond initial equipment purchases, such as those for fueling and maintenance, have remained high for material-handling equipment.
As manufacturing activity has quickened, manufacturers have bought more material-handling equipment to keep operations in pace with production and demand. Manufacturers also have expanded payrolls to maintain the higher production pace, which means they have had to conduct more operator training. While training is the least costly of post-purchase expenses, IBISWorld said, the costs of preparing material-handling operators are proportionate to the size and capacity of the manufacturing operation and thus are growing.
IBISWorld calculated that a gas-powered forklift that accrues 2,500 operating hours a year, for example, costs an average $1,500 to maintain and $5,000 in fuel to keep moving. The research firm said while electric forklifts and pallet trucks have higher initial sticker prices, their lower costs of ownership make them advantageous to their gas-powered counterparts, if manufacturers intend to use them over several years; IBISWorld said electric-powered forklifts cost $2,000 annually for fuel and $500 a year for maintenance. The firm also pointed out that gas-powered forklifts have additional costs in on-site refueling equipment, such as pumps and storage tanks, which should be critical purchasing considerations for manufacturers.
Maintenance costs for such equipment will obviously be higher for manufacturers that have aggressive operating environments. IBISWorld recommended manufacturers powder-coat their pallet trucks' forks, bodies, frames, steering handles, and all other exterior metal surfaces to slow down their wear and tear. And it said maintenance costs are naturally higher for used material-handling equipment and should be weighed against new equipment if manufacturers are considering the pre-owned equipment route.
IBISWorld said bluntly that equipment buyers "that intend to use [a] forklift for less than 10 months are better off renting." It estimated that the average cost of renting a forklift is around $900 per week, whereas owning a new one costs about $38,000.
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This article was originally published on ThomasNet News Industry Market Trends and is reprinted in its entirety with permission from Thomas Industrial Network. For more stories like this please visit Industry Market Trends.