Production at U.S. Manufacturers Falls for a Second Month

Factory output fell in September for a second month as high inventories and lukewarm demand from overseas customers kept American producers bogged down.

The 0.1 percent drop at manufacturers, which make up 75 percent of all production, followed a revised 0.4 percent decrease the prior month, a Federal Reserve report showed Friday. The median forecast in a Bloomberg survey called for a

0.2 percent decrease. Total industrial production, which also includes mines and utilities, dropped 0.2 percent.

A surge in the dollar since mid-2014 has made U.S. products more expensive in foreign markets at the same time the oil industry cuts back and companies contend with bloated stockpiles. Manufacturing’s woes are only partially being cushioned by steady purchases of automobiles that have led consumer spending in underpinning the economy.

“Manufacturing continues to be kind of soft,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “It’s a combination of weak foreign demand and inventories getting rebalanced. I’d expect another few months of flat-to-down manufacturing output.”

Utility output climbed 1.3 percent for a second month as warmer September weather boosted demand for air conditioning.

Mining production, which includes oil drilling, slumped 2 percent, the most in four months. Oil and gas well drilling decreased 4 percent.

Estimates from economists in the Bloomberg survey ranged from a 0.7 percent decrease to a 0.3 percent gain for manufacturing, which accounts for about 12 percent of the economy. The previous month’s reading was revised from a 0.5 percent drop.

Economists’ Forecasts

The Bloomberg survey median projected a 0.2 percent decline in industrial production. Output in the prior month fell 0.1 percent, revised up from a previously reported 0.4 percent decrease.

The Fed report also showed capacity utilization, which measures the amount of a plant that is in use, decreased to a three-month low of 77.5 percent from 77.8 percent the prior month.

The output of motor vehicles and parts increased 0.2 percent. Excluding autos and parts, manufacturing fell 0.1 percent, the first drop since May.

Auto Sales

Vehicle demand remains a mainstay for factories. Purchases of cars and light trucks posted an 18.1 million annualized rate in September, the strongest since July 2005, after 17.7 million a month earlier, according to Ward’s Automotive Group.

The Fed’s report showed consumer goods production, which rose 0.2 percent, was the only major market group to post a gain in September. Output of business equipment and construction supplies declined.

Other recent reports underscore a struggling industry. The Institute for Supply Management’s factory index in September posted the third straight decline, falling to the weakest level since May 2013.

Fed policy makers, weighing whether to raise interest rates this year for the first time since 2006, are monitoring economic data for signs that headwinds such as cooling overseas markets may be spilling over into the U.S. and pose a risk to the expansion.

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