WASHINGTON (Reuters) – Production at U.S. factories barely rose in October and output in the prior two months was not as strong as initially thought, suggesting that manufacturing was rapidly losing momentum amid higher interest rates.
Manufacturing output edged up 0.1% last month, the Federal Reserve said on Wednesday. Data for September was revised lower to show production at factories rising 0.2% instead of 0.4% as previously reported. Production in August increased only 0.1%, rather than 0.4% as previously estimated.
Economists polled by Reuters had forecast factory production gaining 0.2% last month. Output increased 2.4% compared with October 2021.
Higher interest rates and the rotation of spending back to services is restraining manufacturing, which accounts for 11.3% of the U.S. economy. The Fed has raised its policy rate by 375 basis points this year from near zero to a 3.75% to 4.00% range as it battles rampant inflation in what has become the fastest rate-hiking cycle since the 1980s.
Production at auto plants rose 2.0% last month. There were also increases in the output of electrical equipment, appliances and components as well as aerospace and miscellaneous transportation equipment. But construction supplies and materials production declined.
Mining output fell 0.4%. Utilities production dropped 1.5%, posting a third straight monthly decline.
As a result, overall industrial production dipped 0.1% in October after edging up 0.1% in September.
Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, was unchanged at 79.5% last month. It is 1.3 percentage points above its long-run average. Overall capacity use for the industrial sector decreased 0.2 percentage point to 79.9% last month. It is 0.3 percentage point above its 1972-2021 average.
Officials at the Fed tend to look at capacity use measures for signals of how much “slack” remains in the economy – how far growth has room to run before it becomes inflationary.
(Reporting by Lucia Mutikanid; editing by Jonathan Oatis)
