US factory production unexpectedly declines during severe winter

[WASHINGTON] Production at US manufacturers unexpectedly declined in February, representing a pause in recent momentum as factories were beset by severe winter weather and supply-chain challenges.

The 3.1 per cent decrease in output was the first since April and followed an upwardly revised 1.2 per cent gain in January, according to Federal Reserve data Tuesday. That was worse than all estimates in a Bloomberg survey of economists. The median forecast called for a 0.2 per cent rise.

Excluding the effects of inclement weather, factory production would have fallen about 0.5 per cent in February, the Fed said in a statement.

Total industrial production, which also includes mines and utilities, dropped 2.2 per cent in February after an upwardly revised 1.1 per cent increase a month earlier.

Total industrial output reflected a 7.4 per cent surge at utilities. That was the largest advance since March 2017 and driven by increased demand for heating. The bitter cold weather also resulted in blackouts in Texas and disrupted production at refineries.

While manufacturers continue to battle supply shortages and shipping challenges, tailwinds for producers include lean business inventories, steady demand from consumers and solid capital spending.

The Fed's index of manufacturing output is 4 per cent below where it was a year ago. The March data will offer a clearer read on the progress of American manufacturing, given other gauges of activity have largely been upbeat. The Institute for Supply Management's measure rose last month to a three-year high.

Auto production slumped 8.3 per cent in February, the largest fall since April and reflecting both a global shortage of semiconductors and the severe weather, reducing overall manufacturing output about 0.5 per cent.

Production in the chemical industry dropped 7.1 per cent last month, reflecting petrochemical plant shutdowns along the Gulf Coast.

BLOOMBERG