Coronavirus Economy: US Manufacturing Plummets To End Of WWII Levels

U.S. manufacturing dropped to its lowest level since the end of World War II, falling 6.3% last month as a result of shutdowns necessitated by the coronavirus pandemic, the Federal Reserve reported Wednesday. Industrial output – factories, utilities and mines – was off 5.4%.

The Fed reported autos and auto parts plummeted 28% while factories ran at 70.2% of capacity, the lowest level since the economy began its recovery from the Great Recession and down from 75.1% from February.

“To protect individuals against the spread of COVID-19, a large number of states and localities issued ‘stay-at-home’ orders directing ‘nonessential’ businesses to suspend most operations. Most of these orders were introduced in the second half of March, but at different times in different jurisdictions. The suspension of production had a large, negative effect on industrial production for the month,” the Fed said.

James Watson and Gregory Daco at Oxford Economics said industrial production could drop 15% overall as the crisis continues.

“The outlook is bleak for the industrial sectors,″ they wrote in a research note. “With the global coronavirus recession leading to a sudden stop in activity at home and around the world, factory output is likely to fall even further in April. Major supply chain disruptions, reduced energy activity and tighter financial conditions will continue to represent major headwinds in the coming months.″

The Fed had to adjust the way it gathers data for the month, using models developed for natural disasters like hurricanes.

Harvard Business Review noted getting manufacturing back up to speed will be complicated because of the way modern supply networks are set up and uncertainty about controlling the pandemic.

“The long-term trend towards specialization in most fields is increasing because of the very different technological skills and capabilities demanded of firms working on the leading edge,” HBR noted. “Whether you are making computers, food ingredients, or personal care products, this division of labor helps firms incorporate new technologies and do so more economically than ever before.

“Specialists are also able to exploit scale economies both in production and design, making it harder for firms who might wish to become self-sufficient to perform those tasks economically.

“The end result is that we have many suppliers scattered around the world upon whom manufacturers depend for critical components.”