Factory Production in U.S. Falls on Less Motor Vehicle Output

Factory production declined in December for a second month as a stronger dollar and softer U.S. and global growth pinch manufacturers.

Output at factories dropped 0.1 percent, matching the previous month’s decline, figures from the Federal Reserve showed Friday. Total industrial production, which also includes mines and utilities, fell a larger-than-forecast 0.4 percent.

Factories have struggled in recent months as a stronger dollar makes American-made goods more expensive for overseas customers, and recent data show domestic demand is having trouble picking up the slack. Heightened concerns that global growth is weakening, including a slowdown in China, may extend manufacturing’s woes.

“Manufacturing, more so than the consumer, is facing quite a few headwinds, and the real drags on manufacturing aren’t really providing much hint of a relief in the near future,” said Gennadiy Goldberg, a U.S. strategist at TD Securities LLC in New York, which correctly forecast the decline in factory production. The industry will stay “soft for the time being.”

Figures from the Federal Reserve Bank of New York showed manufacturing’s struggles extended into 2016. The bank’s gauge of business activity in the region contracted in January at the fastest pace since March 2009.

Another report from the Commerce Department indicated tepid household demand. Retail sales fell 0.1 percent in December, wrapping up the weakest year since 2009 and raising concern about the momentum in consumer spending heading into 2016.

Manufacturing, which makes up about 75 percent of total production, was forecast to be unchanged in December, according to the median forecast in a Bloomberg survey of economists. November was revised down from no change.

Capacity Utilization

Total industrial production was projected to fall 0.2 percent, with estimates ranging from a drop of 0.8 percent to a 0.7 percent gain, according to the survey of 79 economists. November data were previously reported as a 0.6 percent decline.

Capacity utilization, which measures the amount of a plant that is in use, declined to 76.5 percent last month from 76.9 percent. The decrease was largely due to less utility demand. Capacity at power plants dropped to 73.2 percent in December, the lowest since records began in 1972.

Mining production, including oil drilling, decreased 0.8 percent last month after a 2.1 percent slump in November. Drilling and servicing at wells dropped 7.4 percent and was down almost 62 percent from the same time a year earlier.

Warmer Weather

Utility output decreased 2 percent in December after falling 5 percent. Last month was the warmest December on record for the contiguous U.S, according to the National Oceanic and Atmospheric Administration. The group’s measure of temperature-related energy demand matched the lowest on record, thanks to warmth in the Midwest and Northeast.

While auto sales have been a bright spot for manufacturers, they tapered off at the end of 2015. The production of motor vehicles and parts declined 1.7 percent in December as demand started to simmer.

Cars and light trucks sold at a 17.2 million annualized rate last month, the slowest pace since July, according to data from Ward’s Automotive Group. Still, 2015 was a banner year for the industry, with a record 17.5 million cars and light trucks sold.

Consumer goods production dropped 0.8 percent in December, reflecting the decrease in auto output.

Excluding autos and parts, factory production rose 0.1 percent last month after no change. The output of primary metals declined 3.5 percent, reflecting less global demand.

Business equipment production edged up 0.1 percent last month after a 1 percent decline in November.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE