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U.S. manufacturing output posts biggest gain in 10 months

Kitco News

WASHINGTON, (Reuters) - U.S. manufacturing output increased by the most in 10 months in December, boosted by a surge in the production of motor vehicles and a range of other goods, which could allay fears of a sharp slowdown in factory activity.

The Federal Reserve said on Friday manufacturing production jumped 1.1 percent last month, the biggest gain since February. Data for November was revised slightly up to show output at factories gaining 0.1 percent instead of being unchanged as previously reported.

Economists polled by Reuters had forecast manufacturing output rising 0.3 percent in December. Production at factories increased at a 2.3 percent annualized rate in the fourth quarter after expanding at a 3.7 percent pace in the July-September period.

Last month’s surge in manufacturing production is unlikely to be sustained after a report earlier this month showed a measure of new orders received by factories tumbling in December to its lowest level since August 2016.

Manufacturing activity, which accounts for about 12 percent of the economy, is slowing as some of the boost to capital spending from last year’s $1.5 trillion tax cut package fades. In addition, a strong dollar and cooling growth in Europe and China is hurting exports. Lower oil prices are also slowing purchases of equipment for oil and gas well drilling.

Last month, motor vehicle production surged 4.7 percent after gaining 0.2 percent in November. Excluding motor vehicles and parts, manufacturing advanced a solid 0.8 percent last month, boosted by a strong increase in the output of construction supplies, business supplies and material. That followed a 0.1 percent gain in November.

December’s surge in manufacturing output, together with a rise in mining production offset a drop in utilities, leading to a 0.3 percent increase in industrial production. Industrial output rose 0.4 percent in November. It increased at a 3.8 percent rate in the fourth quarter after notching a 4.7 percent gain in the third quarter.

Utilities output tumbled 6.3 percent in December as mild temperatures lowered demand for heating, after rising 1.3 percent in the prior month.

Mining output increased 1.5 percent last month after climbing 1.1 percent in November. Oil and gas well drilling fell 0.3 percent in December.

Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, rose to 76.5 percent in December from 75.8 percent in November.

Overall capacity use for the industrial sector rose to 78.7 percent from 78.6 percent in November. It is 1.1 percentage points below its 1972-to-2017 average. Industrial capacity use rose to 78.0 percent in 2018, the highest since 2014, compared to 76.1 percent in 2017.

Officials at the Fed tend to look at capacity use measures for signals of how much “slack” remains in the economy — how far growth has room to run before it becomes inflationary.

Reporting By Lucia Mutikani; Editing by Andrea Ricci

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