U.S. industrial production growth slows in third quarter as autos weigh on manufacturing

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US industrial production slows Q3

Highlights

U.S. industrial production rises at a 2.8% annualized rate in Q3, slowing from 4.8% in Q2 due to supply chain and energy cost pressures.
Manufacturing grows just 1.3% quarter over quarter as motor vehicle and components output falls 3.4%, but semiconductor output surges 28.4%.
Utilities production jumps 14.8% annualized in Q3, with data center energy demand and high temperatures driving electric and gas output up 14.2% and 19.0% respectively.

Third-quarter slowdown reflects pressure on manufacturing

As reported by HR Ratings, the three-month moving average of U.S. industrial production posts an annualized increase of 2.8% quarter over quarter in the third quarter, slowing from 4.8% in the second quarter of 2026 as supply chain disruption and higher energy costs affect activity.

The softer quarterly reading is tied largely to manufacturing, which grows 1.3% quarter over quarter after a 5.8% increase in the previous quarter. The report links part of that deceleration to shrinking output in cars and components, while higher automobile loan costs during the period affect demand for durable consumer goods. Production of motor vehicles and components falls 3.4% quarter over quarter.

The report says the manufacturing slowdown is not broad-based. Durable goods output rises at an annualized 3.8% pace, supported in part by a 28.4% increase in semiconductors and related electronic components, while nondurable manufacturing output declines 1.6%. HR Ratings says durable production is likely to remain firm if investment in artificial intelligence continues.

Utilities and AI-related demand support output

High summer temperatures and electricity use from data centers lift utility activity in the quarter. Electricity and gas production increases 14.8% on an annualized basis, with the electric and natural gas segments rising 14.2% and 19.0% quarter over quarter, respectively.

On a monthly basis, industrial production rises 0.7%, its strongest increase since last April's 0.8%. Utilities lead the gain with a 3.5% month-over-month increase, the largest in nine months, while mining edges up 0.2% and manufacturing increases 0.3%. Electrical equipment rises 1.3% month over month, which the report attributes to AI investment, and nondurable goods production increases 0.4%, ending two straight months of declines.

HR Ratings says sustained industrial growth will be difficult without broader improvement across manufacturing. It adds that momentum remains vulnerable as long as the Middle East conflict and other geopolitical instability continue to affect supply chains and energy tariffs, and that gains in mining and utilities alone are not enough to drive a stronger overall increase.

In our earlier article on how geopolitical conflicts are reshaping global trade, we covered the WTO’s view that repeated disruptions linked to the Middle East and Ukraine wars are pushing companies to redesign supply chains and shipping routes in ways that could persist. We also noted that while the outlook for global merchandise trade growth has been lifted, it remains vulnerable to tariffs, conflict-related shocks, and uncertainty about how durable AI-driven demand will be.

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