WASHINGTON: U.S. industrial output unexpectedly plunged 0.5% in January as a big drop in manufacturing, particularly vehicles and parts, more than offset a rebound in utilities, a government report said on 15 February.
“Output in the manufacturing sector declined 0.7 % in January; about one-half of the decrease was a result of a drop of 6% in motor vehicles and parts,” the Federal Reserve said in its monthly report.This was the biggest drop in overall output in more than five quarters, or since a 1.6 % decline in September 2005.
Economists had predicted factory output would be weak for a few months as manufacturers trimmed inventories. But the report may signal more weakness in the industrial sector than previously thought. A deeper downturn in manufacturing could foreshadow unexpected weakness in the broader economy, analysts warned.
“Industrial production and data of the past few sessions present a softer economic environment. The economy has done a 180-degree turn here,” said Richard Yamarone, chief economist at Argus Research in New York.
Most other broad industry categories showed weakness in January, on top of the big slump in autos, the Fed’s data showed. For example, business equipment output was down 1.6 % and construction declined 1.0%.Machinery production plunged 4.1 % last month.
U.S. Treasury debt prices extended their gains on the production data, which suggested more moderation in future economic growth. Ten-year Treasury notes were quoted up 10/32 on the day to yield 4.70%. Bond prices and yields move in opposite directions.The drop in production pushed capacity use of factories, mines and utilities down to 81.2 %, its lowest level in nearly a year.
Analysts polled by Reuters had predicted industrial output would be flat in January as manufacturers worked down inventories. They also predicted a smaller decline in capacity use to 81.7% from an unrevised 81.8 % the prior Month.
“We have to remember that besides housing the other sector of the economy that has been very weak is the manufacturing sector,” said Josh Stiles, bond strategist at Ideaglobal in New York.Utility output grew 2.3 % in January as temperatures returned to more normal levels, the Fed noted, after a 2.7 % drop in December.
Mining output fell 1.2 % after a 1.4% increase the prior month, while machinery production plunged 4.1%.Compared to a year ago, overall industrial output was up just 2.6%. Notably, utility output was up 10.1 % from the same time last year.