Federal Reserve reports unchanged industrial production in August as manufacturing slips

The Federal Reserve’s latest G.17 report shows total US industrial production flatlined in August, with manufacturing output actually declining 0.3 percent. Capacity utilization held steady at 76.3 percent, a number that sits 3.1 percentage points below the long-run average recorded from 1972 to 2025.

The numbers behind the flatline

July’s preliminary numbers had shown a modest 0.2 percent increase in total industrial production, with capacity utilization ticking up to reach that 76.3 percent mark. August’s reading essentially erased the momentum.

At 76.3 percent capacity utilization, roughly a quarter of the nation’s industrial capacity is sitting idle. That gap between current utilization and the long-run average of about 79.4 percent suggests that manufacturers still have plenty of room to ramp up production without building new facilities or hiring aggressively.

The ISM Manufacturing PMI told a somewhat different story for August, registering at 54.6. Any reading above 50 indicates expansion, and this marked eight consecutive months of growth in manufacturing activity according to that survey. But even the ISM data carried a caveat: new orders showed signs of cooling, hinting that the factory floor’s recent momentum might be losing steam.

A rate hike changes the calculus

On September 16, the Federal Reserve raised the federal funds rate by 25 basis points, bringing the target range to 3.75 percent to 4.00 percent. This was the first rate hike in three years. Meanwhile, 10-year Treasury yields have crept toward 5 percent, raising the cost of debt financing for capital expenditures, equipment purchases, and inventory management.

What this signals for markets

The 76.3 percent capacity utilization figure is relevant from a pricing power perspective. When factories are running well below their potential, companies have limited ability to pass cost increases along to customers. Excess capacity acts as a natural check on inflation within the goods sector.

When a government bond pays nearly 5 percent, the opportunity cost of holding anything riskier goes up mechanically.

The ISM’s eight-month expansion streak offers some reassurance, but the cooling in new orders flagged by the same survey is a leading indicator that tends to precede further deceleration in production.

The next G.17 releases are scheduled for January 15 and February 17, 2027, which will cover the autumn months when the full impact of the September rate hike should start filtering into economic activity.

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