US factory output rises in January by most in 6 months

WASHINGTON – U.S. factories cranked out more autos, furniture and food last month, boosting production by the most since July.

Manufacturing output rose 0.5 per cent in January, after falling in four of the previous five months, the Federal Reserve said Wednesday. Overall industrial production, which includes mining and utilities, added 0.9 per cent, the biggest jump in 14 months.

The data could raise hopes that manufacturing may be stabilizing after output declined for much of last year. The strong dollar and weak overseas growth have cut into exports and the profits of large multinational corporations. By some measures, U.S. factories had contracted since last fall.

“This encouraging report should help quiet the recession calls of late,” Jennifer Lee, an economist at BMO Capital Markets, said.

Americans are spending at a solid pace, offsetting some of the overseas drag. Some economists have noted that manufacturing’s weakness has been concentrated in sectors that are particularly sensitive to low oil prices and the global economy’s health, such as aerospace and industrial machinery.

Meanwhile, auto sales rose to a record level in 2015, and the production of cars and car parts rose 2.8 per cent, the most since July. Furniture output climbed 1.4 per cent, and food production advanced 0.8 per cent.

“The major driver of manufacturing growth is consumer spending for basics and durable goods,” said Dan Meckstroth, chief economist at MAPI, a manufacturing research group. “We expect to see many ups and downs in manufacturing production this year.”

Utility output jumped 5.4 per cent as Americans turned up the heat in their homes after an unseasonably warm December. Mining, which includes oil and gas drilling, was flat after four months of declines. Sharply lower oil prices have caused big drops in mining, which now may be levelling off.

The dollar has increased about 20 per cent since July 2014, which makes U.S. goods more expensive overseas and lowers the price of competing imports. China, the world’s second-largest economy, has seen its growth slow, which has hit developing countries that export to China and weakened the global economy.

Yet some economists argue that most of U.S. manufacturing has not been affected by overseas trends.

Alexander Lin, an economist at Bank of America Merrill Lynch, points out that only a few sectors are heavily dependent on international trade, including aircraft, steel and other metals, and appliances.

“Negative sentiment toward U.S. manufacturing may be overdone,” Lin wrote in a research note last week.

Tom Porcelli, chief economist at RBC Capital Markets, estimates that only about 30 per cent of U.S. manufacturing has actually reported a drop in output over the past year.

That, in turn, suggests that factories’ woes may not drag down the economy as much as many analysts fear. In every recession back to 1973, output has fallen in at least 80 per cent of manufacturing, Porcelli says.