Domestic production, manufacturing still adjusting to tariffs

In one of the last data releases before Christmas this week, the Federal Reserve released its report on industrial production. The government shutdown delayed the release of numbers for October and the newest ones for November, which were combined in one report.

It wasn’t too pretty. Overall, industrial activity was down 0.1% in October and up 0.2% in November, driven mostly by a big rebound in mining. But sectors crucial to overall economic growth, like construction and utilities, were down, and manufacturing was flat.

U.S. manufacturing is in no-growth mode and has been for months, according to Bradley Saunders at Capital Economics.

“The level of manufacturing output now is no higher than it was in July,” he said.

Factory employment has actually fallen since the beginning of the year.

“We’re seeing industrial production bounce along the bottom, as manufacturing continues to adjust downward in light of U.S. trade conflicts,” said economist Joe Brusuelas at consulting firm RSM.

He’s talking about the Trump administration’s tariffs, designed to make imported goods more expensive and boost domestic producers.

But it’s not working that way, said Saunders. Take auto manufacturing: “It’s fallen in five of the last six months, which is, of course, not what anybody wants to see in the Trump administration, when it was listed as one of the main industries they were looking to supplement with tariffs.”

The problem is, most domestic manufacturers use imported parts and materials, which tariffs are driving up in price, hurting profitability.

“For the next couple of years — outside of the AI buildout — manufacturing should generally struggle, as businesses try and adapt their supply chains,” and figure out what production can be cost-effectively reshored back to the U.S., Saunders added.