July 15, 2020: American industry saw a rebound in June as businesses began to reopen amid the coronavirus pandemic, the Federal Reserve said Wednesday, but the rise could not overcome the stunning decline in the second quarter.
Total output jumped 5.4 percent compared to May, but in the April-June quarter, which included the worst of the COVID-19 outbreak so far, industrial production collapsed at an annual rate of 42.6 percent, “its largest quarterly decrease since the industrial sector retrenched after World War II,” the Fed said.
The monthly data added to other promising indicators of recovery in the United States apparent in regional and national reports, including the New York Fed's manufacturing index Wednesday that posted its first positive reading since February.
But with cases resurging in many states, new restrictions being imposed, and millions still out of work, economists warn that it will take time for the world's largest economy to bounce back.
“The road to a full recovery will be much more uneven compared to the initial strong bounce of the past two months that was prompted by the relaxation of lockdowns,” said Oren Klachkin of Oxford Economics.
“The virus' resurgence in many states in recent weeks has already led to the re-imposition of social distancing measures that will drag on the recovery and bolster already significant headwinds facing the industrial sector” in the second half of the year.
Later Wednesday, the Federal Reserve will release its “beige book” survey of the national economy as it prepares for its next policy meeting later in the month.
But the central bank is unlikely to change its approach, since the Fed already has slashed the benchmark interest rate to zero early in the pandemic, and pumped trillions of dollars in loans and cash into the financial system and the broader economy to prevent a severe recession from becoming a depression.
Manufacturing surged 7.2 percent last month, but it was 11.1 percent below its pre-pandemic level, according to the Fed data. And factory output fell at an annual rate of 47.0 percent in the second quarter.
The gains were driven by the rebound in the auto sector, which had shut down in the early stages of the pandemic, and then reopened with new restrictions to protect workers.
However, the Fed data showed production of motor vehicles and parts remained nearly 25 percent below its February level.
– 'Slower progress' –
Mining, including oil and gas production, fell 2.9 percent in the month. The index for oil and gas well drilling fell 18.0 percent and declined 42.7 percent in the quarter.
Utilities output rose 4.2 percent in June.
Industrial capacity in use continues to climb back, gaining a point to 68.6 percent, compared to the pre-pandemic level of 76.9 percent, the Fed said.
Ian Shepherdson of Pantheon Macroeconomics said that while the figures were encouraging “We expect slower progress over the next few months, given abundant evidence that the broad economy has slowed over the past year.”
In a separate report, the New York Fed's Empire State manufacturing index rose to 17.2 percent in July, but optimism about future business conditions fell sharply compared to June.
That is in keeping with another survey of global consumer confidence which dropped sharply in the second quarter to 92 from a historic high of 106 prior to the pandemic, according to the Conference Board — the biggest drop in over 15 years, and double the decline seen during the 2008 global financial crisis.