U.S. manufacturing output falls for second straight month

March 15, 2019

WASHINGTON, (Reuters) – U.S. manufacturing output fell for a second straight month in February, offering further evidence of a sharp slowdown in economic growth early in the first quarter.

The Federal Reserve said on Friday manufacturing production dropped 0.4 percent last month, held down by declines in the output of motor vehicles, machinery and furniture. Data for January was revised up to show output at factories falling 0.5 percent instead of slumping 0.9 percent as previously reported.

Economists polled by Reuters had forecast manufacturing output rising 0.3 percent in February. Production at factories increased 1.0 percent in February from a year ago.

Motor vehicles and parts output slipped 0.1 percent last month after tumbling 7.6 percent in January. Excluding motor vehicles and parts, manufacturing output fell 0.4 percent last month.

February’s drop in manufacturing production added to soft reports ranging from retail sales to housing in suggesting the economy lost significant momentum early in the first quarter. Goldman Sachs is forecasting gross domestic product will rise at a 0.6 percent annualized rate in the first quarter. The economy grew at a 2.6 percent pace in the fourth quarter.

Manufacturing activity, which accounts for about 12 percent of the economy, is losing steam as the boost to capital spending from last year’s $1.5 trillion tax cut package fades. Activity is also being crimped by a trade war between the United States and China as well as by last year’s surge in the dollar and softening global economic growth, which are hurting exports.

The drop in manufacturing output was offset by gains in utilities and mining, leading to a 0.1 percent rise in industrial production in February. Industrial output fell 0.4 percent in January.

Utilities output rebounded 3.7 percent last month as cold temperatures boosted demand for heating. Utilities output dropped 0.9 percent in the prior month. Mining output rose 0.3 percent last month, matching January’s increase.

Oil and gas well drilling increased 2.8 percent in February after two straight monthly declines.

Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, fell to 75.4 percent last month from 75.8 percent in January.

Overall capacity use for the industrial sector dipped to 78.2 percent from 78.3 percent in January. It is 1.6 percentage points below its 1972-2017 average.

Officials at the Fed tend to look at capacity use measures for signals of how much “slack” remains in the economy — how far growth has room to run before it becomes inflationary.

(Reporting by Lucia Mutikani Editing by Paul Simao)

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