U.S. Factory Output Drops by Most Since April on GM Strike

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© Reuters. U.S. Factory Output Drops by Most Since April on GM Strike© Reuters. U.S. Factory Output Drops by Most Since April on GM Strike

(Bloomberg) — U.S. slumped in October by the most in six months as an auto workers’ strike at General Motors (NYSE:) curtailed vehicle production and the trade war continued to weigh on other factories.

The 0.6% decline in output followed a 0.5% decrease the previous month, Federal Reserve data showed Friday. Excluding the 7.1% drop in motor vehicle output, which was the largest since January, factory production decreased a more modest 0.1% for a second month.

Total industrial production, which also includes output at mines and utilities, slumped 0.8% in October, the largest setback since May 2018.

Key Insights

  • The data are consistent with other reports showing cracks in the factory sector as producers grapple with sluggish global demand, slower business investment and the U.S.-China trade war. The Institute for Supply Management’s gauge contracted three straight months, while a separate index showed global manufacturing shrank in October for a sixth month.
  • All major market groups, including consumer goods and business equipment, reported declines in output for at least a second month.
  • Factory production may rebound next month as the striking United Auto Workers reached an agreement with GM late in October. Overall the strike cost the company nearly $3 billion and lasted 40 days.
  • Aside from the slump in automaker output, production also retreated at makers of computers, electrical equipment, chemicals, apparel and fabricated metals.

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  • The median forecast of economists in the Bloomberg survey for manufacturing output called for a 0.7% decline.
  • Of the three main industrial production groups, mining dropped for a second month on weakness in the oil patch, while utilities registered the sharpest drop since June.
  • Capacity utilization, measuring the amount of a plant that is in use, fell to 76.7% from 77.5%. Capacity utilization at manufacturers decreased to 74.7%, the weakest since September 2017.
  • The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up about three-fourths of total industrial production, accounts for about 11% of the U.S. economy.

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