What The Latest Manufacturing Numbers Mean for Industrial

The Federal Reserve Board’s Industrial Production Index, which measures real production output for manufacturing, mining, and electric and gas utilities each month, shows that manufacturing production output declined to 102.1 in June from 102.7 in May, marking the second consecutive month of decline. And in a new analysis from Moody’s Analytics, economists ponder whether that data will have any bearing on industrial space demand in the US. 

“The industrial production indices, whether for manufacturing or consumer goods, show that as industrial production accelerates, occupancy of industrial space – whether warehouse and distribution or flex/R&D – increases and higher rents follow,” writes Moody’s Ermengarde Jabir, who also notes “recent data reveals a shifting tide in the health and perception of the direction in which manufacturing in the US is headed, given ongoing macroeconomic developments, such as negative quarterly real GDP growth.”

Jabir predicts rising interest rates will continue to increase borrowing costs this year and into 2023, putting downward pressure on goods. And ‘there is also the chance of a domino effect, as manufacturing and the subsequent warehousing/distribution needs for these goods, might shrink, and, in turn, lower demand for industrial properties,” Jabir writes.

But “industrial properties as a whole, and particularly warehouse and distribution, have performed spectacularly well, supported by industrial production numbers both for manufacturing and consumer goods,” Jabir says. The Supply Management (ISM) Purchasing Manager’s Index (PMI) has slid for the past 18 months, despite a rise in manufacturing activity, but July’s figures clocked in at 52.8, indicating some expansion from June.

“While all signs point to a deceleration in the manufacturing sector – a trend also emerging for industrial CRE performance metrics – the tide has not turned towards a widespread contraction in manufacturing, at least not yet,” Jabir says.