Industrial production declined in April by the most in eight months, reflecting broad-based cutbacks in U.S. manufacturing that show factories will provide little support for the economy.
Output at factories, mines and utilities fell a more-than- forecast 0.5% after a revised 0.3% gain in the prior month that was weaker than previously reported, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey called for a 0.2% decline. Manufacturing, which makes up 75% of total production, unexpectedly fell 0.4%, the third drop in four months.
Business investment is cooling at the same time the economy is projected to slow this quarter as across-the-board federal budget cuts take hold. Faster gains in employment and a pickup in overseas markets are needed to drive demand, which would help to spur orders and inventory building and keep assembly lines running at American factories.
“Manufacturing activity could be fairly tepid over the next few months,” Millan Mulraine, an economist for TD Securities USA LLC in New York, said before the report. “We could see a downward adjustment to output. Companies are limiting orders. Overall demand has weakened relative to the first quarter.”
Stock-index futures remained lower after the figures. The contract on the Standard & Poor’s 500 Index expiring in June fell 0.2% to 1,644.6 at 9:20 a.m. in New York
Estimates of the 85 economists surveyed by Bloomberg ranged from a drop of 0.7% to an increase of 0.3%. The prior month was previously reported as a gain of 0.4%. Manufacturing accounts for about 12% of the economy.
The output of motor vehicles and parts decreased 1.3% after a 2.3% gain a month earlier, today’s report showed. Excluding autos and parts, manufacturing fell 0.3% after a 0.5% drop.
Ford Motor Co., General Motors Co. and Chrysler Group LLC said earlier this month reported increases in April sales compared with a year ago. Overall, cars and light trucks sold at a 14.9 million annual pace in April, down from a 15.2 million rate the prior month, according to industry data from Ward’s Automotive Group. The first-quarter average was 15.3 million, the strongest since 2008 and a sign the longer-term outlook remains positive.
Today’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, fell to 77.8% from 78.3% the prior month.
Utility output slumped 3.7% after a 6.4% jump the previous month that was the biggest in six years. Demand for electricity and natural gas returned to normal last month after gaining during the coolest March since 2002, according to the National Climatic Data Center.
Mining production, which includes oil drilling, increased 0.9%.
Greenbrier Cos., a Lake Oswego, Oregon-based rail-car maker, expects orders will grow as international trade improves, consumer demand picks up and the industry works off the excess supply built up in the past few years.
“We think there will be a modest amount of demand continuing in 2013,” Chief Executive Officer William Furman said in a May 8 presentation to investors. “We see substantial demand in 2014 and 2015 building up.”
Details of the industrial production data released today also showed broad-based weakness. Output of business equipment decreased 0.5% in April and consumer goods dropped 0.6%. Machinery production fell 0.4% after a 0.6% decline. Output of construction materials decreased 0.8% after slumping 1.5%.
The economy may cool to a 1.6% pace in the second quarter, after growing at a 2.5% rate in the first three months of 2013, according to a Bloomberg survey of economists from May 3 to May 8. The projected slowdown reflects the lagged effect from a two percentage-point rise in the payroll tax at the start of 2013 and $85 billion in automatic budget cuts that began on March 1.
Business inventories were little changed in March for a second month, as sales fell by the most in nine months, Commerce Department figures showed on May 13.