Factory production in US falls on less motor vehicle output

[WASHINGTON] Factory production declined in December for a second month as a stronger dollar and softer U.S. and global growth pinch manufacturers.

Output at factories dropped 0.1 per cent, matching the previous month's decline, figures from the Federal Reserve showed Friday. Total industrial production, which also includes mines and utilities, fell a larger-than-forecast 0.4 per cent.

Factories have struggled in recent months as a stronger dollar makes American-made goods more expensive for overseas customers, and recent data show domestic demand is having trouble picking up the slack. Heightened concerns that global growth is weakening, including a slowdown in China, may extend manufacturing's woes.

"Manufacturing is mixed but generally soft," Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida, said before the report. "You're looking at somewhat slower growth in the U.S., and the outlook for the rest of the world has softened." Figures from the Federal Reserve Bank of New York showed manufacturing's struggles extended into 2016. The bank's business activity gauge contracted in January at a faster pace.

Manufacturing, which makes up about 75 per cent of total production, was forecast to be unchanged in December, according to the median forecast in a Bloomberg survey of economists. November was revised down from no change.

Total industrial production was projected to fall 0.2 per cent, with estimates ranging from a drop of 0.8 per cent to a 0.7 per cent gain, according to the survey of 79 economists. November data were previously reported as a 0.6 per cent decline.

Capacity utilization, which measures the amount of a plant that is in use, declined to 76.5 per cent last month from 76.9 per cent. The decrease was largely due to less utility demand. Capacity at power plants dropped to 73.2 per cent in December, the lowest since records began in 1972.

Mining production, including oil drilling, decreased 0.8 per cent last month after a 2.1 per cent slump in November. Drilling and servicing at wells dropped 7.4 per cent and was down almost 62 per cent from the same time a year earlier.

Utility output decreased 2 per cent in December after falling 5 per cent. Last month was the warmest December on record for the contiguous US, according to the National Oceanic and Atmospheric Administration. The group's measure of temperature- related energy demand matched the lowest on record, thanks to warmth in the Midwest and Northeast.

While auto sales have been a bright spot for manufacturers, they tapered off at the end of 2015. The production of motor vehicles and parts declined 1.7 per cent in December as demand started to simmer.

Cars and light trucks sold at a 17.2 million annualized rate last month, the slowest pace since July, according to data from Ward's Automotive Group. Still, 2015 was a banner year for the industry, with a record 17.5 million cars and light trucks sold.

Consumer goods production dropped 0.8 per cent in December, reflecting the decrease in auto output.

Excluding autos and parts, factory production rose 0.1 per cent last month after no change. The output of primary metals declined 3.5 per cent, reflecting less global demand.

Business equipment production edged up 0.1 per cent last month after a 1 per cent decline in November.

BLOOMBERG