U.S. manufacturing production near three-year high in November

Production at U.S. factories increased to its highest level in nearly three years in November as output rose across the board, providing a powerful boost to economy as the year ends.

The manufacturing output index climbed 0.7% last month to 100.6, the highest level since January 2019, the Federal Reserve said on Thursday. That followed a 1.4% rebound in October. Economists polled by Reuters had forecast factory production rising 0.7%. Output increased 4.6% compared to November 2020.

Manufacturing, which accounts for 12% of the U.S. economy, is being supported by strong demand for goods even as spending starts to revert back to services. Inventories at businesses are also extremely lean. But strained supply chains because of the Covid-19 pandemic are a constrain.

Spending shifted to goods from services over the course of the Covid-19 pandemic, straining global supply chains.

Production at auto plants rose 2.2% last month after advancing 10.1% in October. Motor vehicle output, however, remains 5.4% below its year-earlier level because of a global shortage of semiconductors. Excluding autos, manufacturing output rose a solid 0.6% in November.

Last month’s rise in manufacturing output combined with a 0.7% gain in mining to lift industrial production by 0.5% to its highest reading since September 2019. That followed a 1.7% jump in October. Utilities production fell 0.8%.

Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, increased 0.5 percentage point to 77.3% in November, its highest rate since December 2018. Overall capacity use for the industrial sector rose 0.3 percentage point to 76.8% last month. It is 2.8 percentage points below its 1972-2020 average.

Officials at the Fed tend to look at capacity use measures for signals of how much “slack” remains in the economy — how far growth has room to run before it becomes inflationary.