US factory output falls in fresh supply-chain warning

[NEW YORK] Production at US factories fell by the most in seven months in September, in part reflecting a sharp pullback in the manufacturing of motor vehicles as well as broader backlogged supply chains and materials shortages.

The 0.7 per cent decrease for manufacturers followed a revised 0.4 per cent decline in August, Federal Reserve data showed on Monday. Total industrial production, which also includes mining and utility output, fell 1.3 per cent last month.

The median estimate in a Bloomberg survey of economists called for a 0.1 per cent monthly increase in both factory production and industrial output. Stocks fell and Treasury yields were up after market open. Resilient demand among firms and consumers has kept production elevated, but it has also contributed to order backlogs as manufacturers struggle to source materials and skilled labour.

The weaker-than-expected September print indicates that producers continue to be held back by snarled supply chains.

The figures also reflect ongoing production challenges following Hurricane Ida, which contributed 0.3 percentage point to the drop in manufacturing, the Fed said.

The report showed motor vehicles and parts output fell 7.2 per cent last month, the sharpest drop since April, after a 3.2 per cent decrease in August, as a global shortage of semiconductors continues to weigh on production.

Automakers including Toyota Motor Corp. have slashed production outlooks for the coming months, citing the parts shortage as a limiting factor. S&P Global Ratings also lowered its US auto sales forecast for this year and expects a "bumpy road" in 2022.

Excluding motor vehicles, production of durable goods rose 0.5 per cent, reflecting gains in the manufacturing of primary metals, electrical equipment and furniture, the Fed said. Non-durable manufacturing, which includes chemicals and paper products, fell 1 per cent last month, the most since February.

Manufacturing job openings are near a record high, and for the products factories can source, prices have soared. Recent data from the Labor Department showed a price gauge of processed goods for intermediate demand, which include materials and components used in manufacturing and construction, are up almost 24 per cent from 12 months ago.

Manufacturing capacity utilisation, a measure of plant use, decreased to 75.9 per cent, while total industrial capacity dropped to 75.2 per cent. Utility output decreased 3.6 per cent in September; oil and gas well drilling dropped 1.2 per cent, and mining output fell 2.3 per cent, reflecting lingering effects of Ida. Production of business equipment rose 0.4 per cent after a 0.6 per cent decline in the prior month.

BLOOMBERG