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US factory output up 0.2% in January

Federal Reserve data suggests manufacturing is still supporting the US economy.


WASHINGTON — US factory production edged up last month as manufacturers cranked out more computers, clothing and steel and other metals, offsetting declines in autos and aerospace.

Factory production increased 0.2% in January after a flat reading in December, the Federal Reserve said.

December’s reading was revised down from a 0.3%t gain. The data suggests manufacturing is still supporting the economy, even though it is growing at a weaker pace than last year.

Strong hiring has given Americans more money to spend, which has boosted demand for cars, electronics and other manufactured goods. That is countering the impact of weak growth overseas, which has dragged down US factories’ exports.

Auto production fell 0.6% last month, lowering overall manufacturing output. Auto output has fallen after spiking higher in November. The decline is likely temporary, however, as car sales remain strong. New car sales surged 14% in January from a year earlier, according to Autodata.

Overall industrial production, which includes mining and utilities, also increased 0.2% in January after slipping 0.3% in December. Utility output rose 2.3% as heating demand increased. Mining production fell 1% due to a huge 10% drop in new oil and gas drilling.

“Sluggish global growth and a stronger dollar may weigh on US exports and industrial activity in coming months,” Greg Daco, an economist at Oxford Economics said. “But domestic fundamentals look strong and should provide offsets.”

Oil prices have fallen by about half since last summer. That has caused drilling companies to hold off on digging new wells and has limited oil and gas extraction, which is included in mining output.

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Greater US consumer spending is barely offsetting the impact of weakness overseas. Spending grew in the final three months of last year at the fastest pace in nine years. Yet retail sales were weak in December and January as consumers have yet to spend their savings from lower gas prices.

Growth in the 19 European countries that share a common currency is sluggish. Japan has just exited recession. And China’s economy is growing at a slower pace than it has historically. US exports fell in December, increasing the trade gap to its widest level in more than two years.

In addition, the rising value of the dollar against other currencies makes US products more expensive abroad. All of those hurdles mean US manufacturers are relying on domestic demand for growth.

Other recent data also suggests manufacturing is growing, but at a sluggish pace.

A survey earlier this month by the Institute for Supply Management, a trade group of purchasing managers, found that factories nationwide expanded in January, but at the slowest pace in a year. New orders, production and hiring all weakened from the previous month.

Companies are also investing less in heavy equipment. A separate report from the Commerce Department this month showed that orders received by US factories have fallen for five straight months. Orders for machinery, industrial equipment and other big-ticket items – a category that is a proxy for businesses’ investment plans – fell for the fourth straight month in December.

© 2015 The Canadian Press

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