Sharp drop in auto output lowers US factory production

AP News
Posted: Sep 15, 2015 9:32 AM
Sharp drop in auto output lowers US factory production

WASHINGTON (AP) — Automakers cut back sharply on production in August after a big gain in July, lowering overall factory output last month.

Manufacturing production dropped 0.5 percent, the biggest decline since January 2014, the Federal Reserve said Tuesday. The drop in auto output accounted for most of the decline. Production of computers, airplanes and furniture also fell.

The report comes just a day before Federal Reserve policymakers meet to consider whether to raise short-term interest rates they control for the first time in nine years. Weak overseas growth and the strong dollar, which are holding back factory output, could cause them to delay a rate hike.

Overall industrial production, which includes mining and utilities, dropped 0.4 percent in August, after a 0.9 percent rise in July.

Auto production plunged 6.4 percent, its steepest fall in more than three years, after an outsized gain of 10.6 percent in July. Those violent swings partly reflect difficulties in seasonally adjusting the data and are likely temporary. U.S. carmakers in the past have temporarily closed their plants in July to retool them for new models. Those shutdowns were much shorter this year, boosting production in July and leading to a corresponding drop in August.

Auto sales are strong and on track to top 17 million this year for the first time since 2001.

Utility output rose 0.6 percent last month, likely because Americans used more air conditioning. Mining production, which includes oil and gas drilling, fell 0.6 percent.

Factories have had a tough year, with a strong U.S. dollar and weak overseas growth cutting into U.S. exports. The dollar has risen about 14 percent in value against other currencies in the past year. That makes U.S. products more expensive and therefore less attractive to overseas buyers.

China's economy is also faltering after decades of breakneck growth. It has been a critical source of demand for American-made industrial machinery, such as mining trucks, construction equipment and agricultural machines. Its slowdown has hit sales and profits for companies like Caterpillar and United Technologies.

Falling oil prices have also dragged down factory output. Crude oil prices, which were around $60 per barrel in the spring, have fallen to about $44. The decline has forced energy firms to curtail drilling, eliminating much of the need for new pipelines and equipment that had boosted factory orders in previous years.

There are signs that some companies are stepping up their investment in machinery and equipment, which is boosting demand for factory goods. Orders received by U.S. factories rose 0.4 percent in July, after a 2.2 percent gain in June.

A key category that tracks business investment plans climbed 2.1 percent in July, the strongest gain in 13 months.