WASHINGTON, Oct. 18 Reuters - Production at U.S. factories fell more than in seven months in September as a global shortage of semiconductors was effecting mobile production, further evidence that supply constraints were hampering economic growth.
Manufacturing production was also severely affected last month by the lingering effects of Hurricane Ida, which severely depressed production at mines. The report from the Federal Reserve on Monday followed on the heels of data last week showing a solid hike in inflation in September. Though retail sales rose last month, that reflected higher prices for motor vehicles.
While the hurricane disruption and weather effects will fade, labor shortages are still worsening, which will continue to weigh on manufacturing output over coming months and quarters, said Michael Pearce, senior U.S. economist at Capital Economics in New York.
Manufacturing output dropped 0.7% last month, the largest decrease since February. Data for August was revised down to show production declining 0.4% instead of rising 0.2% as previously reported. Economists polled by Reuters had forecast manufacturing production going up 0.1%.
Production at auto plants collapsed 7.2% after drop by 3.2% in August. The global shortage of microchips is forcing automakers to cut production. There is also a shortage of workers at ports, which is causing congestion and holding up the delivery of raw materials.
Excluding automotives, manufacturing output dropped 0.3%. The Fed said lingering effects of Hurricane Ida, which devastated U.S. manufacturing output in late August, contributed to the fall of offshore energy production 0.3 percentage point if it occurred in isolated areas?
Consumer goods and appliances production dropped with the decline in auto and consumer products production. Last month, consumer goods production fell 1.9%. However, there was an increase in the output of primary metals and electrical equipment, appliances and components as well as furnishings and related products. Production of nondurable goods fell 0.0%, with big decreases in chemicals, petroleum and coal products.
Overall, manufacturing grew in the second quarter at 5.3% rate after growing at a 5.0% pace in the third quarter. Motor vehicle and parts production rebounded at a rate of 8.6% as manufacturers scrapped the annual plant closures for retooling to manage their chip supplies over summer. Motor traffic output plunged in the second quarter at a pace of 24.6%.
A shortage of motor vehicles in September helped to boost inflation through very flat prices and high retail sales. The dearth of automobiles is also the frustrated attempt to rebuild inventories. The combination of moderate inflation, which is cutting consumer spending, and higher inventory build have led economists to anticipate that economic growth slowed sharply in the third quarter.
The Atlanta Fed is estimating that the net domestic product growth was 1.2% annualized in the last quarter. The economy grew through the second quarter at a pace of 6.7%.
U.S. stocks tumbled amid concerns about inflation. The USD was stable against a basket of currencies. Fidelities of U.S. Treasury fell.
Last month's decline in manufacturing output combined with a 2.3% decrease in mining and a 3.6% drop in utilities to pull down industrial production by 1.3%. The largest drop in industrial output in seven months followed a 0.1% dip in August. Mining was affected by the aftermath of Ida, while demand for utilities subsided following a warmer-than-usual August.
Industrial production rose at a 4.3% rate in the July-September quarter, notching its fifth straight quarter of business growth of at least 4%.
Capacity utilization in the manufacturing sector, a measure of how fully firms are using their resources, fell to 75.9% in September 0.6 percentage points. The overall capacity supply indices in the industrial sector dropped by 1.0 percentage point to 75.2%. It is below the average of 1972 - 2020 in the United States.
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.