Manufacturing Production Bounces Back in March, Long-Run Challenges Persist

By SBE Council at 15 April, 2021, 8:44 pm

by RAYMOND J. KEATING-

After a weather-related decline in February, industrial production (the actual output of the manufacturing, mining and utility sectors of our economy) grew by 1.4 percent in March, as reported by the Federal Reserve. The February change registered -2.6 percent.

Manufacturing, the largest chunk of industrial production, expanded by 2.7 percent in March, after a decline of 3.7 percent in February.

Overall industrial production growth for March was restrained by the large decline in utility output. As the Fed explained, 'The output of utilities dropped 11.4 percent, as the demand for heating fell because of a swing in temperatures from an unseasonably cold February to an unseasonably warm March.'

While a return to growth is most welcome, as noted in the following two charts, much work remains to gear industrial, including manufacturing, production back up at least to where it was pre-pandemic.

Source: Federal Reserve Bank of St. Louis, Fred

Source: Federal Reserve Bank of St. Louis, Fred

But there are additional factors that cannot be ignored. That is, the U.S. has lost industrial and manufacturing output not simply compared to pre-pandemic levels, but to pre-2008-09 economic troubles.

The March 2021 level of industrial production stood at the same level as what prevailed in late 2007. That's no change in more than 13 years. As for manufacturing output, it have never returned to the high registered in late 2007.

These troubling economic realities most assuredly are not an excuse for government to impose some kind of industrial policy. After all, politicians and government lack the proper knowledge and incentives to drive economic growth forward in any area of the economy.

Instead, policymakers need to be seriously evaluating where government interference, roadblocks and costs can be removed or reduced in order to free up entrepreneurs, businesses and investors to drive recovery and growth.

Amazingly, and tragically, the Biden administration seems intent on doing the exact opposite, including increases in taxes and regulations that will make it far more costly to create and build businesses in manufacturing and most other sectors of our economy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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