Coronavirus Could Short-Circuit U.S. Industry Bounce - The Wall Street Journal

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Industrial production rose 5.4% in June, but factories face an uncertain future with Covid cases... — Industrial production rose 5.4% in June, but factories face an uncertain future with Covid cases rising.
Photo: kamil krzaczynski/Reuters

July 15, 2020 12:41 pm ET

Factories had a big rebound last month, but Covid-19’s resurgence is threatening to cut the manufacturing recovery short.

The Federal Reserve on Wednesday reported that industrial production—the combined output of U.S. factories, utilities and mines—rose 5.4% in June from a month earlier after a 1.4% increase in May. The gain was driven by a 7.2% increase in manufacturing production, with a 120% jump in motor vehicle output counting as the standout.

That still left manufacturing production in a deep hole. For the whole of the second quarter it was down 14.7% from the first quarter. And on a monthly basis, it was down 11.1% in June from its February level. But the direction is right, and in the absence of other news it would point to a continued recovery in both the factory sector and the overall economy.

Unfortunately, there is other news. Newly confirmed Covid-19 cases are surging in the Sunbelt and elsewhere, leading some state and local authorities to reimpose restrictions, and to consumers becoming more wary. Credit card data suggest that consumer spending, while up strongly last month, has slowed, while mobility gauges, which measure people’s time away from home, suggest some renewed caution.

That raises the possibility that demand might not be quite so robust in the months ahead as manufacturers had hoped. Indeed a separate report from the Federal Reserve Bank of New York on Wednesday showed that New York manufacturers’ optimism about business over the next six months, which shot higher in early June, has moderated this month.

Nor is weakening demand the only stumbling block that manufacturers’ might face—there is also the virus. While manufacturers are deemed essential businesses, or nearly so, in many places, Covid-19’s resurgence could lead them to adopt more precautionary measures to protect workers, slowing production. And in the worst case, where workers are infected, production lines could be shut down.

One hopes that both government officials and consumers in the new Covid-19 hot spots will take the steps to get outbreaks under control, allowing the country to resume reopening. Until then manufacturing’s recovery could be on hold.