Industrial production unexpectedly falls as U.S. factories cool

Industrial production in the U.S. unexpectedly shrank in January as factories took a breather after the biggest back-to-back gain in three decades.

Output at factories, mines and utilities fell 0.1% after a 0.4% gain in December, figures from the Federal Reserve showed today in Washington. The median estimate in a Bloomberg survey called for a 0.2% rise. Manufacturing, which makes up 75% of total production, dropped after revised data for November and December showed the biggest two-month gain since 1984.

A pickup in consumer and business spending toward the end of 2012 and stabilization in overseas markets including China and Europe will help sales at companies such as Deere & Co. and Eaton Corp Plc. At the same time, a higher tax that is trimming Americans’ paychecks and the risk of across-the-board cuts in federal outlays may prevent bigger gains in production.

“Manufacturing will advance slowly this year as long as demand keeps growing and nothing knocks the economy off course,” Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. Berger was the third-best forecaster of industrial production over the past two years, according to data compiled by Bloomberg. “Markets like China and Latin America will help to keep a floor under U.S. exports.”

Another report today showed factories regained their footing this month. The Federal Reserve Bank of New York’s general economic index climbed to 10, the highest since May 2012 and exceeding the highest forecast in a Bloomberg survey, from minus 7.8 in January. The median projection called for minus 2. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut.

Survey Results

Estimates for total U.S. production from the 81 economists surveyed by Bloomberg ranged from a drop of 0.2% to an increase of 0.5%. The prior month was previously reported as a gain of 0.3%.

Manufacturing, which accounts for about 12% of the economy, dropped 0.4% last month after jumping 1.1% in December and 1.7% in November, the biggest back-to-back gain since January and February 1984.

The output of motor vehicles and parts decreased 3.25 after a 2.9% gain a month earlier, today’s report showed. Excluding autos and parts, manufacturing production fell 0.1% after jumping 0.9% and 1.3% in the previous two months.

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