US factory output fell more than expected in December and data for the prior month was weaker than previously thought, indicating the sector is rapidly losing momentum as higher borrowing costs hit the demand for goods.
Manufacturing output fell 1.3% last month, the Federal Reserve said on Wednesday. Data for November was revised downward to show that factory output declined 1.1% instead of the previously reported 0.6%. Economists polled by Reuters estimated a fall of 0.3%.
Production was down 0.5% year-on-year in December. It decreased at an annualized rate of 2.5% in the fourth quarter.
Higher interest rates are undermining demand for goods, which are mostly bought on credit. The previous appreciation of the dollar and the decrease in global demand are also affecting the manufacturing industry, which represents 11.3% of the US economy. In addition, spending is also shifting towards services.
Domestic manufacturing has been contracting since November, according to data from the Supply Management Institute. The decline appears to have deepened as a report from the New York Federal Reserve on Tuesday showed manufacturing in New York state plunged in January to levels seen in May 2020.
Last year, the Fed raised its benchmark rate by 425 basis points from near zero to the 4.25-4.50% range, the highest level since late 2007. In December, the central bank projected at least An additional 75 basis points of increase in borrowing costs by the end of 2023.
Production at auto plants fell 1.0% last month. There were also large declines in the production of machinery and wood products.
Mining production fell 0.9% after falling 1.2% in November. Utility production rose 3.8% as a nationwide cold snap boosted heating demand.
That offset some of the weakness in manufacturing and mining, leading to a 0.7% drop in overall industrial production. Industrial production decreased by 0.6% in November. It fell at a rate of 1.7% in the fourth quarter.
Capacity utilization for the manufacturing sector, a measure of how well companies use their resources, fell 1.0 percentage point to 77.5% in December. It is 0.7 percentage points below its long-term average.
Overall capacity usage for the industrial sector fell 0.6 percentage points to 78.8%. It is 0.8 percentage points below its 1972-2021 average.
Fed officials tend to watch capacity utilization measures for signs of how much “slack” is left in the economy: how far growth can go before it turns inflationary.
[Con información de Reuters]
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