U.S. manufacturing output increased for a fifth straight month in October, shrugging off a sharp decline in motor vehicle production and suggesting underlying strength in factory activity despite signs of a slowdown in the sector.
The Federal Reserve said on Friday manufacturing production rose 0.3 per cent last month. Data for September was revised up to show output at factories increasing 0.3 per cent instead of advancing 0.2 per cent as previously reported.
Economists polled by Reuters had forecast manufacturing output rising 0.2 per cent in October.
Motor vehicle production slumped 2.8 per cent after increasing 1.3 per cent in September. Excluding motor vehicles and parts, manufacturing gained a solid 0.5 per cent last month, boosted by a strong increase in the output of business equipment. That followed a 0.2 per cent rise in September.
U.S. financial markets were little moved by the data.
Manufacturing, which accounts for about 12 per cent of the economy, is being supported by a strong domestic economy. But growing capacity constraints amid labour shortages and more expensive raw materials are slowing momentum. A strong dollar and cooling global growth are restraining exports. Reports on Thursday offered a mixed picture of regional manufacturing activity in early November. Factory activity in New York state expanded moderately this month, but it slowed sharply in the mid-Atlantic region.
October’s rise in manufacturing production offset decreases in mining and utilities output, leading to a 0.1 per cent gain in industrial production last month. Industrial output rose 0.2 per cent in September.
The Fed said Hurricanes Florence and Michael had lowered the level of industrial production in both September and October, but the effects of the storms “appear to be less than 0.1 per cent per month.”
Mining output fell 0.3 per cent in October after slipping 0.1 per cent in September. Oil and gas well drilling rebounded 1.6 per cent after declining for three straight months.
Utilities output dropped 0.5 per cent in October after dipping 0.1 per cent in the prior month.
Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, rose to 76.2 per cent in October, the highest since July 2015, from 76.1 per cent in September. Overall capacity use for the industrial sector fell to 78.4 per cent from 78.5 in September. It is 1.4 percentage points below its 1972-to-2017 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.