U.S. factory output was unchanged in January for a second month after a run of healthy advances consistent with ongoing expansion in the industry, according to Federal Reserve data released Thursday.
Highlights of Industrial Production
Factory output compares with an estimated 0.3% gain. The prior month was revised down from a 0.1% gain. … Total industrial production, which also includes mines and utilities, eased 0.1% (just below an estimated 0.2% rise) after a revised 0.4% gain (previous 0.9%). This was the first decline in five months. … Capacity utilization, measuring the amount of a plant that is in use, eased to 77.5% from 77.7%.
Key Takeaways
The soft results for factory production, which may have been impacted by harsh weather in some parts of the U.S., reflected a 1.4% slump in the output of construction materials that was the biggest decline since December 2013. In contrast, production of business equipment and consumer goods increased.
While total industrial production was weighed down by a second consecutive decline in mining output, strength in the oil-and- gas industry helped push the mining index up 8.8% from a year ago.
Other reports indicate manufacturing remains on solid ground. The Institute for Supply Management’s index showed factories expanded more than forecast in January and near the fastest pace in more than 13 years.
Lower taxes and a pickup in overseas markets are spurring business investment. Steady hiring, rising home equity and elevated confidence also indicate sustained demand from consumers, which will boost sales of durable goods.
The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up 75% of total industrial production, accounts for about 12% of the U.S. economy.
What Our Economists Say
Manufacturing was impaired by severe inclement weather in parts of the country at the beginning of the month. At the same time, the colder-than-usual temperatures boosted electric and natural gas production, which lifted utilities output. Fast-forward the weather impact, industrial output is estimated to pick up this year, supported by the tax reforms and a more optimistic economic outlook in general, which in turn will further increase capacity constraints and support business investment growth this year. — Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics
Other Details
Utility output rose 0.6% after surging 4.6% the prior month. … Mining dropped 1% after a 0.4% decline. … Production of consumer goods rose 0.3%, and output of business equipment jumped 0.9%. … Motor-vehicle and parts production 0.6% after a 1.1% gain.
By Shobhana Chandra, with assistance from Jordan Yadoo.
