Industrial production in the U.S. shrank in August by the most since March 2009, reinforcing concern that a pillar of the expansion is faltering.
The 1.2 percent decrease at factories, mines and utilities followed a revised 0.5 percent gain in the prior month, figures from the Federal Reserve showed today. The median estimate in a Bloomberg survey of 81 economists called for production to remain unchanged. Manufacturing, which makes up 75 percent of the total, fell 0.7 percent.
A slowdown in global markets is keeping businesses from placing more orders, which may make it harder for companies like Texas Instruments Inc. and Dow Chemical Co. to expand sales. Manufacturing may also be restrained by weaker consumer spending in the face of unemployment exceeding 8 percent and the looming fiscal U.S. cliff of tax and government spending changes.
“Manufacturing has run out of steam in the face of global economic headwinds and domestic policy uncertainty,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Slower growth in exports and business capital spending will keep growth subdued.”
Hurricane Isaac limited output in the Gulf Coast region at the end of August, reducing the nation’s industrial production by an estimated 0.3 percentage point, the Fed said today.
Bloomberg Survey
Estimates of the economists surveyed by Bloomberg ranged from a drop of 1.0 percent to an increase of 0.7 percent. The prior month was previously reported as a gain of 0.6 percent. Manufacturing accounts for about 12 percent of the economy.
Capacity utilization, which measures the amount of a plant that is in use, fell to 78.2 percent, the lowest since November.
Utility output plunged 3.6 percent, after a 1.3 percent gain the prior month. The figures may reflect some easing after the surge in July, which was the hottest month in the lower 48 states in records going back to 1895, according to the National Oceanic and Atmospheric Administration.
Mining production, which includes oil drilling, decreased 1.8 percent.
The output of motor vehicles and parts fell 4 percent, the most in more than a year, after increasing 2.7 percent the month earlier, today’s report showed. Excluding autos and parts, manufacturing dropped 0.4 percent after a 0.2 percent gain in July.
Autos, a source of manufacturing strength, sold at a 14.46 million annual rate last month, the fastest since the surge in August 2009 tied to the government’s “cash-for-clunkers” program. They were up from a 14.05 million pace in July, according to data from Ward’s Automotive Group.
Today’s Fed report also showed output of computers and electronic products fell 0.7 percent. Machinery production fell 0.8 percent.
Consumer goods production fell 1.2 percent, while output of business equipment declined 0.2 percent.
The Fed yesterday announced its third round of large-scale asset purchases since 2008. Chairman Ben S. Bernanke for the first time pledged that the Federal Reserve will buy bonds until the economy gets closer to his goals, cementing his place as the Fed’s most innovative chairman and signaling the battle against unemployment eclipses any concerns about inflation for now.
A stagnant labor market may restrain household spending. Employers added 96,000 workers in August after a 141,000 increase in July. Unemployment, which fell to 8.1 percent as more Americans left the labor force, has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948.
Foreign Markets
Slower-growing foreign markets will crimp export-related activity at U.S. factories. Exports decreased 1 percent in July as American manufacturers shipped fewer automobiles, metals and consumer goods abroad. Before that, U.S. exports were holding up, rising to a record $185.2 billion in June.
Dow Chemical, the biggest U.S. chemical maker, this month announced a new global business structure as it seeks to reduce costs and respond to softening global market conditions.
“Industries and sectors worldwide are really in the midst of what we consider an incredible challenging environment,” Andrew Liveris, chief executive officer of the Midland, Michigan-based company, told investors at a Sept. 11 conference.
The same day, Dallas-based Texas Instruments, the largest maker of analog chips, said demand in all segments except for wireless is tracking below expectations this quarter.
“Almost all of them are running a little weaker than what we had expected back in July,” Texas Instruments Vice President Ron Slaymaker said in a Sept. 11 teleconference with analysts. “We’re just operating in a weaker demand environment than would be seasonally normal.”
