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US factory output drops last month as auto sales fall sharply

The US Federal Reserve said on February 15 that manufacturing had dropped 0.9 percent in January. This is the steepest decline in the last 8 months. Adding to a sense of weakness, the data for last December was revised downward indicating a smaller output than first reported. The December figures for industrial production were cut to just a 0.1 percent gain from a 0.3 percent gain. Capacity utilization declined 0.6 percentage point to 78.2% in January, the lowest level since last July.

Total industrial output, including factories, mining operations and utilities, declined 0.6 percent during the month. This was the first drop since May 2018. Despite the decline, production was still 3.8 percent better this January than last year.

Autos and parts output dropped

The production of vehicles and parts declined by 8.8 percent last month. This is the biggest drop since May of 2009 a time when the US was still in deep recession. Production off machinery, chemicals, aerospace equipment and electronics also fell off last month.

The statistics were far off forecasts. Economists polled by Reuters had predicted manufacturing production would rise by 0.1 last month.

Breakdown and causes of decline

Last month all categories except mining and utility production declined. Even excluding the large decline in autos, factory output fell 0.2 percent. Mining output was up a mere 0.1 percent last month but with the cold weather utilities gained 0.4 percent.

The manufacturing sector is facing slower global growth, trade tensions and a strong US dollar. There was also a drop in retail sales over the holidays.

Ian Shepherdson, chief economist at Pantheon Macroeconomics said: “Manufacturing is under real pressure from the slowdown in China and the trade war, and we expect output to drift down over the first half of the year, putting the sector into a mild recession. This won’t kill the rest of the economy, but it won’t look good, either, and until the sector bottoms out in the late spring it will make the Fed’s recent dovish turn look like the right move.”

A much more positive outlook is given on the appended video that stresses the positive job growth lately.

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