U.S. industrial production fell 0.2% in July, as factory activity slumped in a worrisome sign for the economy.
The Federal Reserve said Thursday that the overall decline was caused primarily by a 0.4% drop last month in manufacturing production. Output decreased for autos, fabricated metals, wood products, textiles and plastics and rubber products.
Over the past 12 months, factory production has fallen 0.5%. Manufacturers’ struggles reflect a global softening in growth that has been magnified by President Donald Trump’s use of tariffs to escalate a trade war with China. The risks have been great enough that the financial markets on Wednesday flashed signs of a possible recession. The interest charged on 10-year U.S. Treasury notes fell below the rate charged on 2-year notes, usually an indicator that investors see near-term problems that could cause a downturn.
Jennifer Lee, a senior economist at BMO Capital Markets, said the trade war is weighing heavily on manufacturers.
“Uncertainty over which way it is headed, or how painful it will be, is preventing businesses from moving too far forward with spending, investing, hiring plans,” she said.
The declining output at factories has led some analysts and politicians to suggest that manufacturing has entered into its own recession. But other indicators still show growth. The pace of manufacturing job growth has slowed, but the sector is not beset by layoffs. The Institute for Supply Management, an association of purchasing managers, said earlier this month that its survey shows the sector is still expanding, though it has suffered from a slowdown.
Other components of the Fed’s industrial production report were mixed.
Production at the nation’s utilities increased 3.1%. Production at mines, a sector that also covers oil and gas drilling, fell 1.8% as Hurricane Barry temporarily halted oil extraction in the Gulf of Mexico.
More plant equipment is sitting idle. Capacity utilization slipped in July to 77.5%, down 2.2 points from a year ago.