Wed | Sep 20, 2017

US manufacturing output stumble in August

Published:Friday | September 16, 2016 | 9:00 AM
The Marriner S. Eccles Federal Reserve Board Building in Washington.

United States factory production fell last month amid cutbacks in appliances, home electronics and machinery, threatening hopes for a manufacturing rebound after two previous months of gains.

The US Federal Reserve said Thursday factory production dropped 0.4 per cent in August, after an increase of 0.4 per cent in July. A broader measure of industrial output, which includes mines and utilities, also dropped 0.4 per cent.

Manufacturers have struggled for the past 18 months with sluggish global growth, the strong dollar, and reluctance among US businesses to spend more on large machinery and equipment. That has dragged down factory output 0.4 per cent from a year ago. The slowdown has also cost about 30,000 factory workers their jobs in the past year.

"Despite the strong gains in June and July suggesting that the sector was starting to recover, it appears that manufacturing activity is still struggling to make any headway," said Andrew Hunter, US economist at Capital Economics, a forecasting firm.

A second report Thursday suggested the weakness may continue in September. The Federal Reserve Bank of New York said that manufacturing in the state shrank for a second straight month as new orders and shipments fell sharply. Its Empire State manufacturing index rose two points but remained at -2. Any reading below zero indicates contraction.

US utility output fell 1.4 per cent in August after a strong gain in the previous two months that reflected increased use of air conditioning during hotter-than-usual summer weather. Mining production rose one per cent, the fourth increase in a row after a string of declines that mostly reflected sharp drops in oil and gas drilling due to lower oil prices. Still, mining output remains 9.3 per cent lower than a year ago.

The dollar rose nearly 20 per cent in late 2014 through last year. That has cut into US exports by making them more expensive, while lowering the price of competing imports.

Businesses have ratcheted back their spending this year on machinery, computers and other larger equipment, even as the Federal Reserve has kept interest rates low in hopes of spurring more investment. That has lowered demand for manufactured goods.

The business spending slump has been led by energy firms, which slashed investment in new steel pipes and machinery after oil prices plummeted. That could reverse soon as oil prices have stabilised.

Mixed signals

Factory output had expanded in June and July, raising hopes that manufacturing might be starting to grow again. But other signs have been mixed.

The Institute for Supply Management's manufacturing index fell sharply last month to 49.4. Any reading below 50 indicates contraction.

Yet, a separate report earlier this month from the Commerce Department showed that factories received more orders in July, a sign that production could pick up in the coming months.

And the Federal Reserve Bank of Philadelphia's manufacturing gauge rose strongly for the second straight month, pointing to greater output in the mid-Atlantic region.