U.S. industrial production declined more than expected in October, with the auto workers strike exerting downward pressure on a range of market groups, the Federal Reserve said Thursday.
The United Auto Workers union called off a six-week strike late last month after reaching agreement with the "Big Three" automakers over better pay and working conditions.
U.S. industrial production fell 0.6% in October from a revised 0.1% rise in September, the U.S. central bank announced in a statement.
This was below the median expectation of economists surveyed by MarketWatch.
Manufacturing output, which declined by 0.7%, was dragged down by "a 10 percent drop in the output of motor vehicles and parts that was affected by strikes at several major manufacturers of motor vehicles," the Fed said.
Among the major market groups, output was mixed, with the impact of strike action "exerting downward pressure on a number of categories," including the index for consumer durables, which fell 5.8%.
Meanwhile, the output of business equipment moved down 0.5%, "because of a drop in the transit component," while the index for defense and space equipment recorded its 10th consecutive monthly rise, the Fed said.
The ISM (Institute for Supply Management) Manufacturing PMI contracted for the ninth consecutive month with a December reading of 49.3%. When compared to November’s reading of 48.4%, the 0.9 percentage point increase indicates contraction at a slower rate.
“Of the five subindexes that directly factor into the Manufacturing PMI, three (new orders, production and supplier deliveries) were in expansion territory, compared to only one in November,” says Timothy Fiore, chair of the ISM’s manufacturing business survey committee.
2.1 points higher than November’s reading of 50.4%, the new orders index grew at a faster rate in December, registering 52.5%. Anything lower than 50% represents contraction.
The production index entered expansion territory with a reading of 50.3%, 3.5 points higher than the previous month. The employment index contracted at a faster rate, falling 2.8 points to 45.3% in December.
Seven industries reported growth in December:
Primary metals Electrical equipment, appliances & components Wood products Furniture & related products Paper products Miscellaneous manufacturing Plastics & rubber products “None of the six largest manufacturing industries expanded in December, down from two in November,” says Fiore.
The comments of the survey highlight differing conditions based on the industry.
“We are seeing a softening in sales. This is concerning as it’s our peak season,” writes an executive in the food, beverage & tobacco products industry. In addition, a respondent from the fabricated metal products industry reports “order levels well below forecast projections.”
On the other hand, executives from other industries, including electrical equipment, appliances & components and plastics & rubber products, are reporting an increase in orders.
