US factory output falls by the most since 2014

US factory production fell in May by the most since January 2014, weighed down by fewer truck assemblies and still consistent with a steady outlook for manufacturing, Federal Reserve data showed yesterday.

The pullback in factory output largely reflects a disruption in truck assemblies due to a major fire at a parts supplier, the Fed said in the report. Excluding motor vehicles and parts, manufacturing production fell just 0.2 per cent following a 0.8 per cent gain the prior month.

The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up 75 per cent of total industrial production, accounts for about 12 per cent of the US economy.

Other recent reports have indicated factories are on steadier ground. US manufacturing expanded at a faster pace in May, with order backlogs rising by the most in 14 years, while prices for materials continued to pick up, according to a survey released earlier this month by the Institute for Supply Management.

Tariff concerns

Along with supply constraints that are pushing up materials prices, escalating concerns about tariffs pose a headwind to manufacturing. A stronger dollar also threatens to undermine demand for US exports. At the same time, lower corporate and consumer taxes and a strong job market that’s boosting household demand will underpin business investment in coming months.

The factory-use rate cooled to 75.3 per cent from 75.9 per cent a month earlier, and remains 3 percentage points below its long-run average.