US manufacturing plunges in January; weak import prices support tame inflation picture
February 16 2019 12:07 AM
A worker assembles components on a diesel engine at an engine plant in Seymour, Indiana. The US auto industry, which has struggled to adapt to changing technology and consumer tastes, competition and rising steel prices due to the steep tariffs Trump imposed last year, saw production of vehicles plunge 14.4%, while output of parts dropped 3.6%.

AFP, Reuters /Washington

American manufacturing plunged in January, largely on a drop in vehicle assembly, cutting overall industrial production in its biggest decline since mid-2018, the Federal Reserve reported yesterday.
Even excluding the sharp drop in vehicle output, manufacturing — which is at the centre of President Donald Trump’s aggressive trade policies — still declined, albeit by a smaller amount.
That was only partially offset by the slight rebound in utilities, while the volatile mining sector edged slightly higher.
Manufacturing fell 0.9% last month compared to December, although it is still 2.9% higher than January 2018, according to the Fed report.
That drove overall output down 0.6% — in both cases the biggest declines since May of last year.
Economists had been expecting a 0.2% gain in production.
“In one line: Horrible, with further decline in manufacturing to come,” Ian Shepherdson of Pantheon Macroeconomics said in reaction to the report.
“Manufacturing is under real pressure from the slowdown in China and the trade war and we expect output to drift down over the first half of the year, putting the sector into a mild recession.”
The auto industry, which has struggled to adapt to changing technology and consumer tastes, competition and rising steel prices due to the steep tariffs Trump imposed last year, saw production of vehicles plunge 14.4%, while output of parts dropped 3.6%.
Excluding motor vehicles and parts, manufacturing still declined 0.2%, the report said.
Adding to the signals of a slowing industrial sector, overall production in December was slower than originally reported, rising just 0.1% rather than 0.3%.
But output in January was 3.8% better than a year earlier.
Economist Mickey Levy of Berenberg Capital Markets blamed the decline on the polar vortex.
“Extremely frigid weather and a fire in late January halted operations at some auto plants in the Midwest,” he said in a research note.
However, Shepherdson noted that the jump in December “always looked unsustainable” while the January decline was “more dramatic” than implied by other data.
Mining output, which includes oil and gas, edged up just 0.1% last month, while the return of winter weather after the unseasonably warm temperatures in December pushed utilities output up 0.4%, after a nearly 7% drop off in the prior month.
With the decline in output, industrial capacity in use in January dropped six tenths to 78.2% — below a consensus forecast for 78.7% — with a similar drop in manufacturing to 75.8%, according to the data.
Meanwhile, import prices fell for a third straight month in January, leading to the largest annual drop in nearly 2-1/2 years, the latest indication of tame inflation pressures.
The Labour Department said import prices decreased 0.5% last month as the cost of petroleum products fell and a strong dollar weighed on prices of motor vehicles and consumer goods.
Import prices dropped by an unrevised 1.0% in December.
Import prices dropped 3.1% over the last three months, the biggest three-month decrease since July-October 2015.
Economists polled by Reuters had forecast import prices dipping 0.1% in January.
In the 12 months through January, import prices tumbled 1.7%.
That was the biggest annual decline since August 2016 and followed a 0.5% decline in December.
Data this week showed consumer prices unchanged in January for a third straight month and producer prices falling for a second consecutive month.
The inflation reports support the Federal Reserve’s recent description of price pressures as being “muted.”
The US central bank kept interest rates unchanged last month and pledged to be “patient” before tightening monetary policy further.
Last month, prices for imported fuels and lubricants fell 3.2% after plunging 8.6% in December.
Prices for imported petroleum dipped 0.1% after tumbling 10.7% in December.
Imported food prices fell 0.3% in January after edging up 0.1% in the prior month.
Excluding fuels and food, import prices fell 0.2% last month after being unchanged in December.
The so-called core import prices were flat in the 12 months through January.
Core import price readings are likely being held down by the strong dollar, which gained about 7.5% last year against the currencies of the United States’ main trade partners.
The cost of goods imported from China fell 0.3% in January, the biggest drop since September 2017, after edging down 0.1% in each of the prior two months.
The report also showed export prices fell 0.6% in January, declining for a third straight month.
The Labour Department said a 35-day partial shutdown of the federal government had interrupted the collection of data by the Department of Agriculture, impacting the collection of export price data for the January release. Export prices fell 0.2% on a year-on-year basis in January after rising 1.1% in December.

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