Factory Output Falls On Weak Auto Production

Fri, 02/15/2013 - 9:45am
Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) -- U.S. factories slowed production in January after two solid months of cranking out goods. The weakness reflected a big drop in output at auto factories that is likely temporary.

Manufacturing output fell 0.4 percent in January from December, the Federal Reserve said Friday. The decline followed increases of 1.1 percent in December and 1.7 percent in November.

Overall industrial production edged down 0.1 percent in January compared with December. Output In mining, the category that covers oil and gas drilling, fell 1 percent. Utility output jumped 3.5 percent, as a cold snap led more households to turn up their heat.

Factory output, the most important component of industrial production, was dragged lower by a steep 3.2 percent decline in auto and auto parts production. The auto industry is coming off its best year for sales in five years, one of the few bright spots in an otherwise bleak manufacturing sector. Sales continue to rise, so production will likely rebound in February.

Still, many factories outside the auto industry have been hurt by a slowdown in consumer spending and weaker global growth that has dampened demand for U.S. exports.

Economists expect healthier output in 2013, partly because U.S. companies are sitting on large amounts of cash and appear poised to invest some of it in equipment and machinery. Economies in Europe are also healing, and growth in Asia is expected to improve.

A closely watched survey of U.S. manufacturing conditions showed the year got off to a good start. Manufacturing activity grew last month at the fastest pace since April, according to the Institute for Supply Management. Factories saw growth in new orders, hired more workers and boosted their stockpiles after two months of declines, the survey noted.

Slower growth in stockpiles was a key reason the economy shrank at an annual rate of 0.1 percent in the October-December quarter, the first contraction in 3 ½ years. Deep cuts in defense spending and fewer exports also contributed to the decline.

Still, economists expect that figure will be revised in the coming months to show a small increase. That's because December trade data, which wasn't available when the government calculated its first estimate for fourth-quarter growth, showed solid growth in exports.

Economists at Barclays Capital estimate the economy expanded at a 0.5 percent rate in the fourth quarter. And growth will likely pick up in the January-March quarter to an annual rate of 1.5 percent, analysts forecast.

A better job market could boost consumer spending, leading to faster U.S. growth. Employers added 157,000 jobs in January and an average of 200,000 jobs a month since November. U.S. factories have added jobs for the past four months.

Still, unemployment remains high at 7.9 percent. And Americans are seeing smaller paychecks this year because of an increase in Social Security taxes, which could offset any benefits from stronger hiring.

Cliff Waldman, Senior Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI) has weighed in with his opinion on the newest numbers: “After staging an impressive recovery from a destructive Northeast storm, the disturbingly weak performance of U.S. manufacturing output in January is a sobering reminder of the world’s considerable economic challenges,” said . “Total industrial production (manufacturing, mining, and utilities) slipped by 0.1 percent but manufacturing output contracted by a far deeper 0.4 percent.  The factory sector contraction came on the heels of two outsized gains in output during November and December.  

“Nonetheless, the January weakness was fairly broad-based with durable goods manufacturing—which has been the prime catalyst for overall factory sector recovery—suffering a 0.5 percent contraction and nondurable goods manufacturing output falling by 0.3 percent” he noted. “Output in wood products, primary metals, and motor vehicles and parts, important indicators of the impact of key aspects of economic recovery on manufacturing, all suffered setbacks during January.  A slip of 1 percent in chemicals output was the principal reason for nondurable goods weakness.

“The unprecedented nature of Hurricane Sandy creates a measure of ambiguity in data analysis and it is entirely possible that the residual impacts of the destruction suffered by highly populated areas in the Northeast are still impacting manufacturing data” Waldman said. “But the lingering weakness in the U.S. and global economies, as well as ongoing uncertainties over the path and impact of U.S. fiscal policy adjustments, are headwinds for U.S. manufacturing.  Fortunately, the global economic picture appears more stable, with policymakers apparently having prevented the worst of financial contagion in the Eurozone and with an apparent bottoming in the sharp emerging market slowdown.  Global output will remain challenged for some time to come but the worst of the deceleration that plagued the world economy since the early months of 2012 has likely passed.  Slow but steady growth remains the most likely path for U.S. manufacturing during 2013.”  


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