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US Industrial Production Falls in February

Factory Production in US Rose in February for a Second Month

March 16, 2016
American factories might be catching a break from a modest climb in energy prices even as they battle dollar appreciation in a bid to regain momentum after months of malaise.

Factory production rose in February for a second month, boosted by demand for business equipment and indicating U.S. manufacturing may be starting to stabilize.

The 0.2% increase in output followed a 0.5% gain in January, data from the Federal Reserve showed Wednesday. It marked the first back-to-back advance since March-April 2015. Total industrial production dropped 0.5% as utility output plunged by the most since March 2007.

“It does seem that after a recent spell of weakness, manufacturing seems to have found a base,” said David Sloan, senior economist at 4cast Inc. in New York. “This strengthens the tentative perception that manufacturing is making a firmer step in the first quarter, which is encouraging.”

American factories might be catching a break from a modest climb in energy prices even as they battle dollar appreciation in a bid to regain momentum after months of malaise. Manufacturing is struggling to reaccelerate amid tepid global growth that’s holding back the U.S. economy, a reason Fed policy makers will probably refrain from raising interest rates at the conclusion of their two-day meeting.

Manufacturing output, which accounts for about 12% of the economy, was projected to rise 0.1% last month, according to the Bloomberg survey median. Total industrial production was forecast to decline 0.3%.

Capacity utilization, which measures the amount of a plant that is in use, fell to 76.7% in February from 77.1% the prior month. Manufacturing capacity was unchanged at 76.1%.

Warm Weather

Warmer-than-usual temperatures in February depressed utility output by 4% after a 4.2% advance in January. Last month was the warmest February since 2000 in the contiguous U.S., according to the National Oceanic and Atmospheric Administration.

Mining, including oil drilling, dropped 1.4% in February after a 0.7% decline. Well drilling plunged 15.6% last month.

The U.S. rotary rig count has continued a relentless slide that started at the end of 2014, falling to 480 in the week ended March 11 from 489 in the prior period, according to Baker Hughes Inc. data.

Since late 2014, the Fed’s index of oil and gas well drilling and servicing has slumped more than 60%, the central bank said.

Business equipment production climbed 0.6% for a second month, while the output of consumer durable goods increased 0.3% after a 1.5% gain in January. Factories turned out more primary metals, computers and machinery last month.

Vehicle Output

Factory production of motor vehicles and parts dropped 0.1% after a 3.4% rise. Excluding autos and parts, manufacturing output rose 0.2% after advancing 0.3% the prior month.

While oil prices have climbed from a plunge that started in the middle of last year, capital spending in the industry will stay weak as inventories remain high.  The report showed that investment outside oil and gas may be starting to perk up.

At the same time, the dollar remains strong and may bridle U.S. production. The trade-weighted dollar has fallen over the past two months while remaining close to a late-January reading that was its highest in more than 12 years.

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Licensed content from Bloomberg, copyright 2016.

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