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US Factory Production Drops More Than Forecast on Declining Auto Output

June 15, 2016
“The broad story going forward is probably more dragging along the bottom rather than a steep rebound at this point,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC.

Factory production fell more than forecast in May, reflecting declining output of vehicles and business equipment that show U.S. manufacturing is still hobbled by weak global demand.

The 0.4% decrease in output followed a revised 0.2% advance in April, data from the Federal Reserve showed Wednesday. Total industrial production also fell 0.4%.

American producers are still battling the fallout from the plunge in energy prices that has sapped the appetite for investment, while a strong dollar and lackluster global growth have weighed on exports. Manufacturers could find some relief as companies have trimmed stockpiles, leaving them with fewer goods on hand should consumer spending continue to climb.

“The broad story going forward is probably more dragging along the bottom rather than a steep rebound at this point,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. At the same time, there was a “pretty sharp decline in auto production, which tends to be one of the more volatile categories. So that’s a little less worrying.”

Manufacturing output, which accounts for about 12% of the economy, was projected to fall 0.1% last month after a previously reported 0.3% advance, according to the Bloomberg survey median. Total industrial production was forecast to drop 0.2%.

Factory production of motor vehicles and parts decreased 4.2%, the most since January 2014. Excluding autos and parts, manufacturing output declined 0.1%.

Capacity Utilization Drops Below 75%

Capacity utilization, which measures the amount of a plant that is in use, fell to 74.9% in May from 75.3% the prior month. At factories alone, the operating rate dropped to 74.8%, the lowest since February 2014. Manufacturing capacity is 3.7 percentage points below its long-run average, the Fed said.

Utility output declined 1% after a 6.1% surge in April. Temperatures for the contiguous U.S. in May hovered around the average in records dating back more than a century, according to the National Oceanic and Atmospheric Administration.

Mining production, including oil drilling, rose 0.2% in May, the first increase since August, after a 2.6% decrease. Drilling and servicing at wells dropped another 7.9%.

Those figures may stabilize as the U.S. rotary rig count decline has eased after a relentless slide that started at the end of 2014, edging up to 414 in the week ended June 10 from 408 in the prior period, according to Baker Hughes Inc. data.

Consumer-goods output declined 0.7% last month on declining production of automobile products, clothing, home electronics and appliances.

Business equipment production dropped 0.7% following a 1.2% increase.

By Michelle Jamrisko

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