Factory Production in U.S. Falls by Most Since 2009

A Worker Uses a Snow Blower in Washington
Assembly lines slowed last month as colder weather tempered production, the Fed said, showing a pause in the momentum of an industry that’s helped bolster the economy. Photographer: Andrew Harrer/Bloomberg

Factory production in the U.S. unexpectedly declined in January by the most since May 2009, adding to evidence severe winter weather weighed on the economy.

The 0.8 percent decrease at manufacturers followed a revised 0.3 percent gain the prior month that was weaker than initially reported, figures from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.1 percent advance. Total industrial production dropped 0.3 percent even as utility output climbed the most in almost a year.

Assembly lines slowed last month as colder weather tempered production, the Fed said, showing a pause in the momentum of an industry that’s helped bolster the economy. A pickup in capital spending and faster hiring that drives consumer purchases will be needed to spur production gains.

“Our assumption is that this is a temporary soft patch,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford Connecticut, who called for a 0.2 percent drop in factory output. “You’ve had pretty moderate growth in manufacturing, and I think in all likelihood that’s what’s going to repeat in 2014. It’s important not to overreact to the weakness that you’re seeing now.”

The decline in overall industrial production was the biggest since April 2013. Estimates of the 87 economists surveyed by Bloomberg ranged from a decrease of 1.4 percent to a gain of 0.7 percent.

Stocks were declined after the figures, with the Standard & Poor’s 500 Index falling 0.1 percent to 1,828.75 at 9:36 a.m. in New York.

Broad-Based Decline

The drop in manufacturing, which makes up 75 percent of total production, was broad-based, with declines in the output of business equipment, consumer goods and construction materials. The Fed said in its release that severe weather “curtailed production in some regions of the country.”

Utility output surged 4.1 percent, the most since March 2013, after falling 1.4 percent in December. The weather during both months was unusually frigid: January was the coldest since 2011, according to the National Oceanic and Atmospheric Administration.

Mining output, which includes oil drilling, decreased 0.9 percent, the most in three months, today’s Fed report showed.

The production of motor vehicles and parts slumped 5 percent after a 0.1 percent gain a month earlier, today’s report showed. The Fed said that “numerous” auto plants lost one or more production days due to weather. Excluding autos and parts, manufacturing fell 0.5 percent in January.

Auto Sales

General Motors Co. and Ford Motor Co., the largest U.S. automakers, reported declines in deliveries as the cold kept some shoppers at home. The annualized selling rate for cars and light trucks in January was 15.2 million, down from 15.3 million in December, based on data from Ward’s Automotive Group.

At the same time, faster production last year left automakers with more unsold vehicles. U.S. light-vehicle inventory rose to a nine-year high for the month of January -- totaling 3.61 million units at the end of the month, 13.7 percent above year-ago levels, data from Ward’s showed.

Factory output of consumer goods dropped 0.5 percent, the first decline in six months, while the production of business equipment decreased 0.1 percent. Output of construction supplies fell 1 percent.

Deere, Caterpillar

Deere & Co. is among those expecting higher demand for building materials this year. The company said this week that sales at its construction and forestry segment will rise about 10 percent, even as global agricultural sales ease. Caterpillar Inc., the world’s largest construction equipment maker, on Jan. 27 forecast a 5 percent gain in revenue for its construction industries segment in 2014.

Today’s Fed report also showed capacity utilization, which measures the amount of a factory that is in use, decreased to 78.5 percent from 78.9 percent the month before.

The outlook for production depends on whether demand is strong enough to draw down stockpiles. A report yesterday showed business inventories climbed 0.5 percent in December, and another showed that retail sales dropped 0.4 percent in January.

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