Factory Production Drops for Third Consecutive Month
Factory production in the U.S. declined in February for a third consecutive month, a sign cutbacks in manufacturing will hold back economic growth this quarter.
The 0.2% decrease at manufacturers followed a 0.3% drop in January that was initially estimated as a gain, figures from the Federal Reserve in Washington showed March 16. Total industrial production, which also includes mines and power plants, climbed 0.1%, propelled by a record surge in utility use as temperatures plummeted.
Delays at West Coast ports have probably disrupted supplies, while sluggish growth in foreign markets and a rising dollar that makes American products more expensive may be crimping demand. U.S. consumer spending, supported by job and wage gains, will be needed to underpin activity at factories, which are often considered economic bellwethers.
“Manufacturing is going to be a mixed bag” going forward, Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “You’re seeing weakness related to the soft global economy and the strong dollar, and those are pretty significant negatives for U.S. exporters.”
Manufacturing, which makes up about 75% of total production, was forecast to be little changed, according to the median forecast in a Bloomberg survey. January had previously been reported as a 0.2% increase.
Total industrial production was projected to rise 0.2%, with estimates ranging from a drop of 0.1% to a 0.8% gain, according to the survey of 80 economists. Output in January fell 0.3% compared with a previously reported 0.2% increase.
Capacity utilization, which measures the amount of a plant that is in use, declined to 78.9% in February from 79.1%.
Utility output soared 7.3% last month, the most since records began in 1972.
The eastern U.S. saw below-normal temperatures from Atlanta to New York and record snowfalls in New England. The National Oceanic and Atmospheric Administration’s data showed February was the snowiest month on record for Boston, while Chicago, Buffalo and Cleveland had their coldest February on record.
Mining production, including oil drilling, fell 2.5% in February, the biggest decline in four years, after a 1.3% drop the prior month.
The plunge in fuel prices that started last year has led oil producers such as Sanchez Energy Corp. to curb investment plans. The Houston-based company said affirmed this month it plans to spend $600 million to $650 million on capital, down from the $850 million to $900 million it expected in November.
“What we’re really looking for is more of an overarching stability on the cost side and a settlement of oil in the coming months,” Chief Operating Officer Christopher Heinson said in a March 3 conference call. “The entire cost structure has shifted.”
The decline in manufacturing output in February reflected a 3% drop in production of motor vehicles and parts. Automakers had said the work stoppage at West Coast ports, which has now been resolved, led to a shortage of some supplies.
The report is consistent with data from the Institute for Supply Management that showed manufacturing expanded in February at the weakest pace in a year, limited by slow growth abroad and a work slowdown at West Coast ports. The group’s factory index decreased to 52.9 for February, the lowest since January 2014, after 53.5 the prior month.
The economy may grow at a 2.4% annualized rate in the first quarter after expanding at a 2.2% pace in the three months ended December, according to the median forecast in a Bloomberg survey of economists.
