Tags: Industrial Production | Economy | Factory Output | Energy

Factory Production Cools as Global Markets Weaken

Friday, 16 January 2015 10:05 AM

Factory production cooled in December as capital spending and vehicle assemblies slowed, indicating U.S. manufacturers were adjusting to weaker overseas markets.

The 0.3 percent increase in output followed a 1.3 percent November gain that was the strongest since February, data from the Federal Reserve showed Friday in Washington. Total industrial production fell 0.1 percent as utility use slumped.

Manufacturing growth is slowing to a more sustainable pace as factories take in fewer orders for business equipment and global economies struggle for traction. At the same time, production will probably be underpinned by steady U.S. demand as employment and cheap fuel help power consumer spending.

“The U.S. is kind of the motor of growth globally at the moment,” said Michael Carey, chief economist at Credit Agricole CIB in New York, who correctly projected the gain in factory output. “The U.S. has the tailwinds from the consumer spending coming from the decline in energy prices.”

Another report showed consumer prices declined by the most in six years, reflecting slumping costs for energy. The consumer-price index dropped 0.4 percent, the biggest decrease since December 2008, after falling 0.3 percent a month earlier, the Labor Department said. Excluding volatile food and fuel, the so-called core measure was unchanged, failing to rise for only the second time since 2010.

Manufacturing output, which accounts for about 12 percent of the economy, was projected to rise 0.2 percent last month after a previously reported 1.1 percent surge, according to the Bloomberg survey median. Total industrial production was forecast to fall 0.1 percent.

Capacity Utilization

Capacity utilization, which measures the amount of a plant that is in use, eased to 79.7 percent in December from 80 percent the prior month, which was the highest since March 2008.

Utility output plunged 7.3 percent, the most since January 2006, after a 4.2 percent gain the previous month, the Fed said. Americans adjusted their thermostats as temperatures climbed. Last month was the second-warmest December in records back to 1939, according to the National Climatic Data Center.

Mining production, including oil drilling, increased 2.2 percent in December, the most since March 2011, after a 0.3 percent drop. While the Fed said “much of the gain” was due to oil and gas extraction, well drilling and well-servicing decreased 1.9 percent, the biggest decline since August 2012, after a 0.5 percent decrease a month earlier.

Factory output of consumer goods fell 1.1 percent in December after rising 2.5 percent. Business equipment production increased 0.1 percent after a 1.4 percent jump. Machinery production and wood products output also dropped.

Vehicle Production

The output of motor vehicles and parts decreased 0.9 percent after rising 5.5 percent. Excluding autos and parts, factory production increased 0.4 percent after rising 1 percent the prior month.

Industry data show demand for vehicles is holding up. Sales of cars and light trucks held near a more than eight-year high in December, reaching a 16.8 million annualized rate in December, according to figures from Ward’s Automotive Group.

The report on output corroborates other figures. The Institute for Supply Management’s factory index fell in December to a six-month low. Even with the larger-than-projected decline, the average for all of 2014 was the highest in nine years, the Tempe, Arizona-based group’s data showed on Dec. 31.

Overseas Demand

Factories face the challenge of weaker overseas demand. On Jan. 13, the World Bank reduced its forecast for 2015 global- economic growth to 3 percent from 3.4 percent. The Washington- based lender said the global economy resembles a train pulled by a single engine, the U.S., with other regions dragging behind. It cut projections for the euro area and Japan.

Falling energy prices have compelled some American manufacturers to cut costs. U.S. Steel Corp., the nation’s second-largest producer of the metal, said on Jan. 5 that it planned to idle two pipe plants and fire more than 750 workers.

The Pittsburgh-based company cited “softening market conditions influenced by oil prices and trade” for its decision, spokeswoman Courtney Boone said in a Jan. 6 phone interview.

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Factory production cooled in December as capital spending and vehicle assemblies slowed, indicating U.S. manufacturers were adjusting to weaker overseas markets.
Industrial Production, Economy, Factory Output, Energy
Friday, 16 January 2015 10:05 AM
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