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US Factory Output Falls Most in Five Months on GM Strike

Oct. 17, 2019
Worsened by the impact of the GM strike, factory output declined in September by 0.5%.

Production at U.S. factories fell in September by the most in five months, depressed by an autoworkers’ strike at General Motors Co., sluggish global demand and the trade war.

Production at manufacturers declined 0.5% last month, weaker than the median forecast in a Bloomberg survey of economists, Federal Reserve data showed Thursday. Factory output excluding motor vehicles and parts declined 0.2% after a 0.7% gain.

Total industrial production, which also includes output at mines and utilities, fell 0.4% in September after an upwardly revised 0.8% increase.

Key Insights

  • The figures highlight how multiple hardships are combining to slow work on factory floors. The effects of a United Auto Workers strike at GM, the largest U.S. labor action in a decade, extended beyond assembly plants to the supply chain. The work stoppage only added to the bad news facing manufacturers that are challenged by the tariff war with China, tepid worldwide demand and limited domestic investment.
  • Factory production may rebound this month or next after GM and the UAW reached a tentative agreement to end the more than one-month strike that cost the automaker an estimated $2 billion.
  • Third-quarter manufacturing output increased at a 1.1% annualized pace after slumping at a 3.2% rate in the previous three months.
  • The data corroborate other reports showing a fragile manufacturing sector. The Federal Reserve Bank of New York’s factory gauge remained subdued in October and the Institute for Supply Management’s index dropped to the lowest level since 2016.
  • A 4.2% decline in output of vehicles and parts was the largest since January, the Fed said. Production of primary metals, machinery and plastics also fell in September.

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  • Of the three industrial production groups, mining fell for the second month in the last three, while output at utilities increased for a third month. Within mining, oil and gas well drilling slumped 5.5%, and plunged at a 27.1% annualized rate in the third quarter.
  • Capacity utilization, measuring the amount of a plant that is in use, declined to 77.5% from 77.9%. Capacity utilization at manufacturers fell to a two-year low of 75.3%, reflecting the work stoppage at GM.
  • The median estimate in a Bloomberg survey of economists called for a 0.3% decline in manufacturing output in September.
  • The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up about three-fourths of total industrial production, accounts for about 11% of the U.S. economy.

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