The Economy

U.S. Industrial Output Falls 0.5% in February

The larger-than-expected decline reflects sharp drops in the mining and utilities sector that outweighed an increase in manufacturing.
Katie Kuehner-HebertMarch 16, 2016

U.S. industrial production fell in February as significant declines in the mining and utilities sectors offset a second straight increase in manufacturing.

Output dropped 0.5% last month after increasing a revised 0.8% in January,  the Federal Reserve said Wednesday. Economists surveyed by the Wall Street Journal had expected production would fall 0.2% in February.

Factories have continued to face headwinds from overseas weakness, a strong dollar and cheap oil, and utilities were hit in February by unseasonably warm weather that curbed the demand for heating.

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The output of utilities dropped 4% last month, after jumping 4.2% in January, and mining production fell 1.4%. The mining sector has dropped nearly 1.3% per month, on average, over the past six months.

Manufacturing production was up by 1.8% from a year ago, led by a 9.1% year-over-year increase in motor-vehicle production. In January, factory output rose by 0.5%.

“We take this report as another sign that the underlying fundamentals of the U.S. goods sector are holding up,” Credit Suisse analyst Jeremy Schwartz said in a note to clients. “Growth is unlikely to overshoot on the upside, but momentum is showing signs of recovery.”

Total production fell 1% in February from a year earlier, but was 106.3% of its 2012 average. Capacity utilization for the industrial sector decreased 0.4 percentage point in February to 76.7%, a rate that is 3.3 percentage points below the long-run average between 1972 and 2015.

Economists had expected capacity utilization would drop to 76.8%.

MFR Inc. chief U.S. economist Joshua Shapiro wrote in a note to clients that “sluggish growth abroad will continue to weigh demand for exports, while a need to better balance inventories with overall final demand will probably also weigh on output for a bit longer.”

In the mining sector, the plunge in oil prices has put pressure on U.S. energy firms to scale back production.

Still, the U.S. economy appears to be fundamentally healthy, with continued robust job growth and a 1% expansion of gross domestic product in the final three months of 2015, the WSJ said.