Industrial Production Slips on Reduced Vehicle Output

Industrial Production
Matt Rourke/APA worker assembles construction supplies at Northeast Building Products in Philadelphia.

By Lucia Mutikani

WASHINGTON -- U.S. manufacturing output fell for the first time in seven months in August, but the underlying trend remained consistent with steadily rising factory activity.

That was confirmed by other data Monday showing factory activity in New York state jumped to its highest level in nearly five years in September.

"The weakness in factory output in August is likely to be transitory. We continue to expect underlying U.S. economic growth momentum to continue shifting higher this quarter," said Millan Mulraine, deputy chief economist at TD Securities in New York.

U.S. factory production dropped 0.4 percent last month as motor vehicle production declined sharply after surging in July, the Federal Reserve said. July's factory output gain was revised lower to show a 0.7 percent increase rather than the previously reported 1 percent rise.

%VIRTUAL-WSSCourseInline-876%Economists polled by Reuters had forecast manufacturing output rising 0.3 percent in August.

Excluding automobiles, manufacturing production gained 0.1 percent in August. So far in the third quarter, factory output is running at a 4.6 percent annual pace.

Motor vehicle output declined 7.6 percent last month after a 9.3 percent jump in July.

In a separate report, the New York Fed said its Empire State general business conditions index soared to 27.54 this month, the highest reading since October 2009, from 14.69 in August.

A reading above zero indicates expansion in the region's factories. A gauge of new orders rose last month and inventories continued to shrink, but at a slower pace.

Mining output increased 0.5 percent in August, while utilities production rebounded 1 percent.

That helped to cushion the drag from manufacturing, leaving overall industrial production falling only 0.1 percent in August. July's increase in industrial output was revised down to 0.2 percent from 0.4 percent.

The amount of manufacturing capacity in use fell to 77.2 percent last month from 77.6 percent in July.

Overall industrial capacity use declined to 78.8 percent from 79.1 percent in July. It was 1.3 percentage points below its long-run average.

Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy and how much room there is for growth to run before it becomes inflationary.

-With additional reporting by Daniel Burns in New York.

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