October 20, 2026 - US factory production increased in September, but lost considerable momentum in the third quarter amid headwinds from the Middle East conflict, which has snarled supply chains and raised energy prices. 

The industrial activity strengthened further in Sep-26, with industrial production (IP) growth accelerating to +2.2%yoy (Aug-26: +1.6%yoy).  The improvement was broad-based, supported by stronger utilities output (+8.7%yoy), steady mining activity (+2.8%yoy) and manufacturing production (+1.1%yoy). The latest reading marked the strongest IP growth since Aug-26, indicating resilient industrial activity despite a still restrictive interest rate environment.

Manufacturing production increased +0.3%mom in Sep-26, reversing the -0.2%mom decline in Aug-26. On an annual basis, Manufacturing production growth accelerated to +1.1%yoy from +0.9%yoy previously. The increase was driven by gains in primary metals, machinery, electrical equipment and chemicals, although this was partly offset by a decline in motor vehicle and parts production. Within the 3Q26, manufacturing output expanded +0.7%qoq, supported by a +3.8%qoq increase in durable goods production, including a strong +28.4%qoq surge in semiconductor and related electronic component output.

The stronger IP and MP readings suggest the US industrial sector remained on a firm footing at the end of 3Q26, complementing recent resilience in consumer spending and labour market conditions. The improvement in factory activity, particularly within technology-related manufacturing, indicates that industrial production could continue to support overall economic growth heading into 4Q26.

MBSB in its research note believes elevated borrowing costs and soft external demand may continue to limit the pace of expansion in the manufacturing sector.