Production at U.S. manufacturers falls for a second month

Production at U.S. manufacturers dropped 0.1 per cent, following a revised 0.4 per cent decrease in September.
Production at U.S. manufacturers dropped 0.1 per cent, following a revised 0.4 per cent decrease in September.PHOTO: BLOOMBERG

WASHINGTON (BLOOMBERG) - Factory output fell in September for a second month as high inventories and lukewarm demand from overseas customers kept American producers bogged down.

The 0.1 per cent drop at manufacturers, which make up 75 per cent of all production, followed a revised 0.4 per cent decrease the prior month, a Federal Reserve report showed Friday. The median forecast in a Bloomberg survey called for a 0.2 per cent decrease. Total industrial production, which also includes mines and utilities, dropped 0.2 per cent.

A surge in the dollar since mid-2014 has made U.S. products more expensive in foreign markets at the same time the oil industry cuts back and companies contend with bloated stockpiles. Manufacturing's woes are only partially being cushioned by steady purchases of automobiles that have led consumer spending in underpinning the economy.

"The weakness will continue for some time," Millan Mulraine, deputy head of U.S. research and strategy at TD Securities LLC in New York, said before the report. "Manufacturing has the potential to get worse, but not significantly worse. Much of it has to do with weak global demand and the stronger dollar and those factors will have a lingering impact."

Utility output climbed 1.3 per cent for a second month as warmer September weather boosted demand for air conditioning.

Mining production, which includes oil drilling, slumped 2 per cent, the most in four months. Oil and gas well drilling decreased 4 per cent.

Estimates from economists in the Bloomberg survey ranged from a 0.7 per cent decrease to a 0.3 per cent gain for manufacturing, which accounts for about 12 per cent of the economy. The previous month's reading was revised from a 0.5 per cent drop.

The Bloomberg survey median projected a 0.2 per cent decline in industrial production. Output in the prior month fell 0.1 per cent, revised up from a previously reported 0.4 per cent decrease.

The Fed report also showed capacity utilization, which measures the amount of a plant that is in use, decreased to a three-month low of 77.5 per cent from 77.8 per cent the prior month.

The output of motor vehicles and parts increased 0.2 per cent. Excluding autos and parts, manufacturing fell 0.1 percent, the first drop since May.

Auto Sales Vehicle demand remains a mainstay for factories. Purchases of cars and light trucks posted an 18.1 million annualized rate in September, the strongest since July 2005, after 17.7 million a month earlier, according to Ward's Automotive Group.

Consumer goods production, which rose 0.2 percent, was the only major market group to post a gain in September. Output of business equipment and construction supplies declined.

Other recent reports underscore a struggling industry. The Institute for Supply Management's factory index in September posted the third straight decline, falling to the weakest level since May 2013.

Fed policy makers, weighing whether to raise interest rates this year for the first time since 2006, are monitoring economic data for signs that headwinds such as cooling overseas markets may be spilling over into the U.S. and pose a risk to the expansion.