US industrial production fell by more than analysts expected last month, the Federal Reserve said on Tuesday (Jul 18), with a sharp contraction in output seen in consumer durables such as automotive products and carpeting.

June marked the second consecutive monthly decline, reversing some of the positive figures seen earlier this year and providing further evidence of slowing production as the Fed prepares to weigh another interest rate hike next week.

The 0.5 per cent dip in industrial production was driven by a steep contraction in the index for consumer durables – such as appliances, furniture and carpeting – which fell by 2.7 per cent, said the Fed.

Consumer non durables also contracted by 0.9 per cent due to decreases in clothing, energy, as well as food and tobacco production.

The monthly decline was below the median expectation of economists surveyed by MarketWatch.

The only gain last month came from defence and space equipment, which rose by 1.5 per cent.

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“In short, overall industrial production and manufacturing output were weaker than expected” to end the second quarter, High Frequency Economics’ chief US economist Rubeela Farooqi wrote in a note to clients.

“Weaker demand for goods and higher borrowing costs are headwinds for manufacturers,” she added.

But she said that if demand stabilises and onshoring and infrastructure spending trends continue, it “could be positive for factory activity over coming months”.

The US central bank recently paused its campaign of interest rate hikes after 10 consecutive increases, giving policymakers more time to assess the health of the world’s biggest economy.

Despite the aggressive moves last year, inflation remains slightly above the Fed’s long-term target of 2 per cent, the labour market remains resilient and the overall economy remains in good shape.

Although there were monthly declines in May and June, industrial production rose 0.7 per cent on an annual basis in the second quarter, said the Fed.

The Fed indicated last month that it expects that two additional quarter percentage-point hikes will be needed this year – the first of which could come next Wednesday. AFP