U.S. manufacturing output rises as third-quarter momentum slows

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US manufacturing output Q3 slowdown

Highlights

U.S. manufacturing output rises 0.3% in September after a 0.2% August decline, with Q3 factory production growth slowing to a 0.7% annualized rate from 5.6% in Q2.
Durable goods output increases 0.1% in September and 3.8% annualized in Q3, driven by a 28.4% surge in semiconductors and electronics amid AI infrastructure spending.
Diesel prices hit a record high due to the U.S.-Israeli war, contributing to cost pressures as overall industrial production rises 0.7% and capacity utilization reaches 76.9% in September.

Federal Reserve data show mixed industrial trends

As reported by Reuters, citing the Federal Reserve, manufacturing output rebounds 0.3% in September after a revised 0.2% decline in August, matching economists' expectations. Factory production is up 1.1% from a year earlier, while growth in the third quarter slows to a 0.7% annualized rate from 5.6% in the second quarter.

Durable goods production edges up 0.1%, supported by primary metals, machinery, and electrical equipment, appliances and components. Motor vehicles and parts production falls 3.0%, while third-quarter durable goods output grows at a 3.8% pace, partly lifted by a 28.4% jump in semiconductors and related electronic components amid the AI spending boom.

Nondurable manufacturing output rises 0.4% in September on gains in printing and chemicals, though it falls 1.6% in the third quarter. Mining production increases 0.2% in the month and grows at a 5.0% rate in the July-September period, while utilities output jumps 3.5% on air-conditioning demand and advances at a 14.8% pace for the quarter.

Energy costs and trade risks weigh on outlook

Manufacturing accounts for about 9.4% of the U.S. economy, leaving the sector exposed to shifts in energy, trade and financing conditions. While AI infrastructure spending and inventory rebuilding to meet solid domestic demand are supporting production, higher energy prices, a trade war with Canada and rising borrowing costs present downside risks.

Diesel prices have surged to a record high as the U.S.-Israeli war with Iran drags on, raising the prospect of broader cost pressures for goods, including food sold in supermarkets. Overall industrial production rises 0.7% in September after a 0.1% gain in August, and capacity utilization for the industrial sector increases to 76.9% from 76.4%, remaining 2.5 percentage points below its 1972-2025 average.

Our earlier article on the conflict-driven spike in oil shipping costs explained how attacks and heightened risk premiums on key routes are pushing tanker rates sharply higher, making freight a much larger share of delivered crude prices. It also noted that these elevated transport and insurance costs can filter through to gasoline and broader consumer prices, while import-dependent markets and refiners face the biggest near-term strain.

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