Business

US industrial output fell 0.2% in July as factories struggle

Sunday, August 18, 2019

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WASHINGTON (AP) — US industrial production fell 0.2 per cent in July, as factory activity slumped in a worrisome sign for the economy.

The Federal Reserve said on Friday last that the overall decline was caused primarily by a 0.4 per cent drop last month in manufacturing production. Output decreased for autos, fabricated metals, wood products, textiles, and plastics and rubber products.

Over the past 12 months, factory production has fallen 0.5 per cent. Manufacturers' struggles reflect a global softening in growth that has been magnified by President Donald Trump's use of tariffs to escalate a trade war with China. The risks have been great enough that the financial markets on Wednesday flashed signs of a possible recession. The interest charged on 10-year US Treasury notes fell below the rate charged on two-year notes, usually an indicator that investors see near-term problems that could cause a downturn.

Jennifer Lee, a senior economist at BMO Capital Markets, said the trade war is weighing heavily on manufacturers.

“Uncertainty over which way it is headed, or how painful it will be, is preventing businesses from moving too far forward with spending, investing, hiring plans,” she said.

The declining output at factories has led some analysts and politicians to suggest that manufacturing has entered into its own recession. But other indicators still show growth. The pace of manufacturing job growth has slowed, but the sector is not beset by layoffs. The Institute for Supply Management, an association of purchasing managers, said earlier this month that its survey shows the sector is still expanding, though it has suffered from a slowdown.

Other components of the Fed's industrial production report were mixed.

Production at the nation's utilities increased 3.1per cent. Production at mines, a sector that also covers oil and gas drilling, fell 1.8 per cent as Hurricane Barry temporarily halted oil extraction in the Gulf of Mexico.

More plant equipment is sitting idle. Capacity utilization slipped in July to 77.5 per cent, down 2.2 points from a year ago.


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